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
- H&R Block and TurboTax have been accused of “deceptive advertising” by the FTC. Earlier this year, the Federal Trade Commission banned Intuit, the makers of TurboTax software, from marketing free filing products to taxpayers, some of whom were not eligible for free services. Now the FTC has also filed an administrative complaint against H&R Block for similar reasons. In addition to misleading advertising, the FTC said that H&R Block made it difficult for consumers to downgrade and unlawfully deleted users’ tax return information if they attempted to change products while filing.
- The Outback Steakhouse or Macy’s department store nearest you may soon be an empty building. Bloomin’ Brands—owner of chain restaurants like Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, and Fleming’s—suddenly closed 41 restaurant locations last month. Restaurants in Iowa, New Jersey, Pennsylvania, and Virginia were part of the closures, as well as all Outback Steakhouses in Hawaii. The company has stated that Outback will be opening around 18 new locations in the U.S. with a redesigned layout. Similarly, Macy’s recently announced plans to close 150 of its stores as part of a large-scale reorganization. The company intends to focus more of its investment on luxury brands Bloomingdale’s and Bluemercury, which it also owns.
- The latest industry to advocate for a tax break? Spacecrafts. A new bill recently introduced in Congress would allow spaceports to issue tax-exempt bonds to earn revenue for infrastructure improvements. Airports and seaports currently have this authority. The authors of the Secure U.S. Leadership in Space Act of 2024 emphasized the importance of keeping up with other nations like China that have fast-growing space initiatives. These municipal bonds would ideally make it easier for space agencies to secure funding at a lower cost to them. Agencies also spoke of the tax break as another step toward normalizing spaceflight as a form of transportation.
What's New In The Tax World?
The IRS levels up on cryptocurrency tax compliance with the help of two former crypto executives
The agency has hired Sulolit “Raj” Mukherjee and Seth Wilks as advisers to help with tax enforcement. Mukherjee was previously the global head of tax at ConsenSys and worked for Binance’s U.S. unit. Wilks was an executive at TaxBit, a crypto tax software firm. The IRS has increasingly focused its attention and resources on digital assets and intends that these experts from the private sector will help shape regulations in a way that works for both the agency and the taxpayer.
As of 2024, the IRS requires taxpayers who received at least $10,000 in cryptocurrencies to report their transactions. If crypto users fail to file a report within 15 days of that transaction, they may be charged with a felony offense. The agency is also working on new regulations that will require brokers to report details on their clients’ transactions to the IRS. This new threshold has been contested by the crypto advocacy group CoinCenter, which filed a lawsuit stating that many miners and validators who receive block rewards or use decentralized exchanges do not have data on any identifiable senders.
What do taxpayers need to know about reporting cryptocurrency income this tax season? All taxpayers will notice that they are now required to answer a digital asset question when filling out their tax forms. The IRS has defined a “digital asset” on its website and listed convertible virtual currency and cryptocurrency, stablecoins, and non-fungible tokens (NFTs) as common examples. Digital assets are currently taxed as property by the IRS, similar to stocks or real estate, which means that taxpayers are only taxed when they sell or exchange these assets. This means that buying, donating, or gifting digital assets (unless a gift tax applies) are not taxable events.
Taxpayers who must report on cryptocurrency can start by gathering information on each transaction to fill out Form 8949 for “Sales and other Dispositions of Capital Assets.” With this data, taxpayers will be able to calculate their gains and losses and report these totals on their tax form. Crypto users will also need to report their net gains or losses on Schedule D. Lastly, any income must be reported on Form 1040—the standard tax form for all individual income.
State-By-State Updates
- Kansas shuts down a $1.6 billion tax cut package including a flat income tax rate of 5.25%. Governor Laura Kelly had previously vetoed the plan, which was then sent back to the Legislature where it narrowly failed to pass the re-vote. The introduction of a flat personal income tax rate has been a battleground between the Democratic governor and Republican state legislators. Republican leaders attempted to include provisions in the bill that Kelly might favor, such as eliminating the 2% grocery sales tax, reducing personal property taxes, and exempting Social Security benefits from income tax. The governor continued to stand against the flat income tax plan, stating that it primarily benefited top income earners and would cause budget deficits within the next five years.
- New Jersey’s governor attempts a tax reboot—a proposal to reintroduce a business tax he recently let expire. At the end of 2023, Governor Philip D. Murphy fulfilled his plan to let a 11.5% corporate tax expire with the aim of making the state more entrepreneur-friendly. However, the governor is now advocating to bring the tax back with some amendments. The new tax would still stand at 11.5% but would only apply to corporations earning $10 million or more per year, a significant increase from the previous $1 million threshold. The goal would be to funnel this revenue into improving New Jersey’s transit system, which is projected to have a $900 million deficit by 2026. If it is reintroduced, the corporate tax could yield about $800 million per year.
- Virginia businesses push back against a proposed sales tax for digital goods. Local trade associations submitted a letter to lawmakers asking them to vote against the “tech tax” that would apply to streaming subscriptions, cloud storage, online downloads, and similar purchases. The letter especially asked that business-to-business transactions be exempt from this tax. Proponents of the proposal say that the tax is only fair—if sales tax is levied on CDs and physical servers, why would digital downloads and cloud storage be exempt? Both legislative chambers included a version of this expanded sales tax in their two-year budget plans, and the governor has also spoken in favor of this move. The expanded tax is projected to earn over $1 billion in revenue.
- Washington lawmakers continue the quest to eliminate the state’s income tax. The House Finance and Senate Ways and Means Committees recently listened to an initiative that would prohibit tax on any future income. Washington residents have not been required to pay personal income tax for about the last century due to a 1933 court case that declared a voter-approved income tax unconstitutional. The new initiative aims to decisively outlaw state income tax going forward but would not impact any current Washington state taxes. Three other measures, including an initiative to repeal the state capital gains tax and to repeal parts of the Climate Commitment Act, will not receive hearings and will instead appear on this year’s ballot.
Tax Planning Tips
Planning your retirement? Consider these states with the lowest tax rates.
The taxes most likely to impact retirees include income tax, property tax, and sales tax. Based on these metrics, the top five states were Wyoming, Nevada, Tennessee, Washington, and Florida, all of which levy no state income tax. These states also boast a low property tax rate with Wyoming coming in lowest at 0.56% and Florida still coming in under 1% at 0.91%.
While living expenses continue to rise across the nation, the Cost of Living Adjustment (COLA) is just 3.2% for 2024, which impacts the Social Security and Supplemental Security Income benefits available to retirees. Meanwhile, healthcare costs are expected to increase by almost 7% this year. Some have expressed concern that the COLA increase is not enough to offset upcoming changes. For instance, 2024 marked the beginning of the “Peak 65 zone” when over 4.1 million U.S. citizens will turn 65 each year from now through 2027. One estimate suggests that about half of these households may not have enough saved to maintain their standard of living in retirement.
Yes, taxpayers do have to pay taxes on interest earned through their bank accounts. With spiking interest rates, more Americans may have received a 1099-INT form than in previous years. In response to inflation, the Federal Open Market Committee kept upping interest rates a total of eight times starting in March 2022, reaching its highest level in over 20 years by July 2023. Before this series of increases, many taxpayers had seen very little interest in their bank deposits. Now, many savings accounts pay more than 5% in interest.
Banks are required to send 1099-INT forms to any taxpayers who receive more than $10 in interest. At an interest rate of 5%, taxpayers would only need around $200 in their account to meet this threshold. The Congressional Budget Office expects that taxpayers will report $327 billion in interest this year, compared to $237 billion in 2019. Fortunately, the process for reporting this income is simple. The total amount of taxable interest listed on your 1099-INT form should be listed on Form 1040 on line 2, under the words “taxable interest.”
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