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
The Supreme Court rules that the IRS does not need to give notice to third parties when requesting bank records… for tax collection purposes. The case in question concerned a taxpayer, Remo Polselli, with a balance of over $2 million in unpaid taxes. The IRS issued a summons to each bank that had Polselli’s financial information but did not notify him about these requests. The Supreme Court unanimously ruled that the IRS was exempt from providing notice when the summons was related to a tax collection, acknowledging that in certain cases giving notice to a taxpayer might result in their moving assets so the IRS cannot locate them.
Mississippi Representative Earle Banks confesses to making a false statement on a tax return… and now faces three years in prison. The lawmaker admitted to failing to report over $500,000 of income from a real estate sale in 2018. Instead, Banks only claimed $38,237 in adjusted gross income. The conviction does not prevent Banks from seeking reelection this year, since violating federal tax laws does not bar people from holding a legislative seat in Mississippi. Banks is currently running unopposed.
U.S. NEWS
The IRS is developing a free electronic tax filing system that could replace commercial options
The agency is planning to pilot their own government-run system in 2024. Filing tax returns directly with the government will be optional, but the plan progresses in response to IRS surveys that found that 72% of taxpayers would be significantly interested in this option. The free system received the most support from younger taxpayers, those for whom English is not a first language, and those who prepare their own tax returns. Legislation passed in 2022 set aside $15 million in funding to study the idea.
Advocates of the IRS free filing system say that taxpayers should not have to spend time and money on filing tax returns when it is required by law. However, the plan is already receiving pushback from companies like TurboTax, which is part of the $14 billion tax-preparation industry. Opponents claim that building a government-run system will cost taxpayers billions of dollars looking to solve a non-existent problem. Many of these companies already offer a free-filing option through the IRS website, but only 2% of taxpayers currently use these.
A key concern that has been expressed is whether the IRS system will provide the largest possible refund or the lowest tax bill. Another question is whether the system will be able to integrate state-level returns. The first phase of the pilot will allow a select number of actual taxpayers to try out the system next year. The agency will use this limited group to test functionality and inform future iterations of the tool.
Research shows that pre-populated returns may be possible for up to 50% of taxpayers. A 2022 working paper published by the National Bureau of Economic Research estimated that the IRS could correctly auto-fill as many as 62 million to 73 million returns using information it already has. Based on an analysis of 350,000 individual tax returns, the highest level of accuracy was among low- to moderate-income filers and lowest for returns with a large number of itemized deductions. Possible problems with pre-populated returns include third-party tax forms, correctly identifying a taxpayer’s filing status, and taxpayer compliance.
STATE NEWS
Texas legislators advance a bill that would change property tax limits… and could save homeowners over $1,000 per year. The state House approved raising the homestead exemption and lowering the maximum yearly increase in tax value. This proposal comes in response to rising property values—and therefore rising taxes. If the bill passes in the Senate, property owners could collectively save up to $12 billion in taxes.
The House bill increases the mandatory homestead exemption to $100,000 for most homeowners and $110,000 for senior citizens. The bill also lowers the cap on property appraisal increases from 10% to 5%. Opponents, including Lieutenant Governor Dan Patrick, have expressed concern that the changes will not have the intended effects. One concern is that the proposal would undo current tax benefits that compress tax rates and put a higher tax burden on new home buyers.
A previous cap in 2019 put a 2.5% limit on revenue growth for school districts and 3.5% on cities and counties. The current bill would attempt to offset this by providing $12 billion in state funding to school districts.
The Minnesota House and Senate will be evaluating a new tax bill… that includes tax rebates, child tax care credits, Social Security tax breaks, and higher corporate taxes. First, the proposal introduces a $260 tax rebate for individuals (or $520 for couples) who made up to $75,000 in income in 2021 (or $150,000 for couples). The rebate may be even higher for families with children who could receive another $260 per child for up to three children. Additionally, families could qualify for child tax credits, which would start at $1,750 per dependent for joint filers who make up to $35,000. The credit would phase out for earners making between $35,000 to $90,000.
Changes would also come to Minnesotans receiving Social Security income. Originally, lawmakers considered exempting Social Security from state taxes, but the current proposal puts forth an exemption only for taxpayers making $100,000 a year or less. For joint filers, the exemption phases out for those who make up to $140,000. This change would aid an estimated 80% of Minnesotans who receive Social Security benefits.
TAX PLANNING
In 2023, the IRS flagged over 1 million tax returns as potentially fraudulent. Combined, these returns yielded about $6.3 billion in tax refunds. The IRS continues to investigate identity theft as a top problem facing taxpayers. This most commonly occurs when scammers use a taxpayer’s personal information to file a false return in their name and claim their tax refund. Identity crime hit an all-time high in 2021 and only slightly decreased in 2022. As of March of this year, the IRS confirmed that 12,617 of the tax returns evaluated were in fact fraudulent.
To deal with this pervasive problem, the IRS has increased the number of fraud filters it uses from 168 to 236 this year. When a tax return is flagged as potentially fraudulent, it is placed on hold until the IRS can verify the taxpayer’s identity. Taxpayers may find out they are the victim of identity theft when they attempt to file a return and see that their Social Security number has already been used.
Taxpayers can take steps to protect themselves by requesting an Identity Protection Personal Identification Number (IP PIN) from the IRS. Once issued, this six-digit number will be required as an authentication measure each time a tax return is filed. Taxpayers can also file their returns early in the tax season and adopt online security measures to reduce the risk of identity theft.
A new study highlights the discrepancy in tax breaks between top executives and their employees. The report published by the Institute for Policy Studies pulls data from the Department of Labor and the Securities and Exchange Commission on the executives and board chairs at S&P 500 companies. These corporate officers often receive special tax-advantaged retirement benefits, in part because the government does not require them to disclose the difference in retirement benefits between executives and other workers.
Each year, there is a cap on how much taxpayers can contribute to a 401(k) plan. In 2023, the limit is $22,500 or $30,000 if you are aged 50 or older. However, employers can also offer a nonqualified deferred compensation plan, or “top hat” plan, which does not have any such limit unless a cap is set by the employer. This type of plan allows high-earning executives to set aside large portions of their earnings tax-deferred.
Among the companies evaluated, the average retirement account balance for CEOs was $14.6 million, whereas the average 401(k) balance at Vanguard (a major retirement plan provider) was $33,472. Advocates for policy change have suggested introducing a contribution cap on nonqualified deferred compensation plans or a higher tax on high-income earners to help fund Social Security.
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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.