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In The Headlines
- The Biden administration faces another lawsuit battle against the Chamber of Commerce. The topic? Non-compete clauses. The Federal Trade Commission (FTC) recently issued a rule banning non-compete clauses, which prevent workers from seeking work with a competing employer or launching a competing business. Almost immediately, several business groups, backed by the U.S. Chamber of Commerce, filed lawsuits arguing that the FTC is overstepping its authority. The Biden administration asserts that these regulations are intended to protect workers and boost wages. So far in 2024, the executive branch introduced seven new rules that were quickly met with lawsuits, covering arenas from climate disclosure requirements to credit card late fees to independent contractors.
- Donald Trump faces a $9,000 fine for contempt of court for posting online statements criticizing participants in his trial. The judge overseeing the hush money case stated that the former president would face jail time if he violated the gag order again. One post cited an article calling Trump’s former lawyer Michael Cohen a “serial liar,” and another quoted a news pundit claiming “undercover liberal activists” were attempting to sneak onto the jury. The trial concerns whether Trump attempted to hide a $130,000 payment from his business records issued to porn star Stormy Daniels to keep quiet about an alleged sexual encounter.
- Walmart closed its Walmart Health division that offered doctor-staffed clinics. The mega-retailer had opened 51 clinics across locations in Arkansas, Florida, Georgia, Illinois, and Texas, in addition to a virtual care option. The corporation had previously stated it planned to expand to 70 clinics by the end of 2024, but recent updates indicate that Walmart decided the business model was not sustainable. Walmart’s pharmacies and vision centers will remain open. Similarly, Walgreens recently closed 140 VillageMD primary care clinics, and a health venture backed by Amazon, Berkshire Hathaway, and JPMorgan Chase closed its corporate offices in an attempt to dramatically downscale.
What's New In The Tax World?
New guidelines for clean energy tax credits will impact electric vehicles, aviation fuel, and monetization of tax credit transfers
The Biden administration’s Inflation Reduction Act introduced a slate of tax credits related to renewable energy and initiatives to address climate change. The specifics of who can qualify for which credits has been slowly unfolding since this was signed into law. One recent update benefits individual taxpayers and businesses looking to buy an electric vehicle. The tax credit for a brand new clean energy vehicle can be as high as $7,500—and now that amount can be requested as an upfront discount. In other words, buyers will receive the tax credit amount they qualify for as a reduction to the sticker price instead of waiting until tax season to claim the money. The same tax credit maxes out at $4,000 for used EVs.
Another set of new guidelines applies to sustainable aviation fuel (SAF). Producers of corn-based ethanol, a renewable fuel already present in most U.S. gasoline, could qualify for a tax credit depending on their agricultural methods. By using certain fertilizers and farming methods, SAF producers can receive $1.25 to $1.75 per gallon back if their fuel reduces greenhouse-gas emissions by at least half compared with oil-based jet fuel. Aviation’s share of carbon emissions is growing faster than any other industry, prompting most major airlines to begin investing in SAF.
Lastly, a new provision allows more companies to transfer certain tax credits to others in exchange for cash. The aim is to simplify how clean energy projects are financed. Project owners and developers can essentially “sell” the tax credits they have earned through meeting clean energy requirements to fund their projects instead of relying on banks for capital.
Overall, the requirements for corporations to move toward clean energy are steadily accelerating. The Environmental Protection Agency is requiring new natural gas power plants to cut 90% of their emissions by 2032, while existing plants will have to do the same by 2039. Companies can opt into federal programs like the Department of Energy’s Carbon Capture Demonstration Program (CCDP), a $2.5 billion fund that helps coal and natural gas generation facilities and industrial facilities adopt environmentally-friendly technologies and infrastructure.
State-By-State Updates
- Colorado approves a tax reform package that includes changes to income tax, sales tax, and state revenue refunds. Legislators recently passed a number of bills intended to reimagine how to apply the Taxpayer’s Bill of Rights, an amendment that limits the amount of revenue state governments can retain and spend. Tax cuts include reducing the income tax rate to 4.25% from 4.4% and lowering the sales tax to 2.77% from 2.9%. Also proposed are over $700 million in new tax credits, including a new family affordability tax credit for parents, an expanded earned-income tax credit, and new housing tax credits for renters and seniors. In exchange for these tax breaks, the government would be required to cut the state’s income tax rate any year that the surplus tax revenue exceeds $300 million.
- Florida introduces a Freedom Month Sales Tax Holiday this July. The tax break will specifically apply to items families often use during the summer months, such as camping supplies, pool toys, kayaks, grills, and even bicycles. Most purchases are capped at a certain dollar amount to be tax-free. A full list of eligible summer items can be found on Governor Ron DeSantis’s website. The sales tax holiday also covers the cost of admission to events and performances happening between July 1st and December 31st this year. This includes live music events, movies shown in theaters, sporting events, fairs, and festivals, as well as annual passes for museums and state parks and season passes for ballets, plays, and similar performances.
- Iowa is dropping its state income tax to a flat rate of 3.8% beginning in 2025. The state had already approved a transition to a 3.9% flat tax by 2026, whereas its previous structure had a top tax rate of 5.7% and a bottom tax rate of 4.4%. This shift will give Iowa the sixth-lowest income tax in the country. Analysts estimate that the new rate will reduce state revenue by $328 million in the next fiscal year, but revenue is not expected to fall below the budget in the next few years. The approved bill also adjusts a property tax relief law by changing the limits on how much revenue growth a city or county can see from its general levy.
- Kansas passes a bill that features $2.3 billion in tax cuts over the next five years. However, taxpayers may want to press pause on incorporating these tax breaks into their future plans—the bill is very similar to one that Governor Laura Kelly vetoed in the past. A number of legislators are anticipating the new bill will see the same fate. The tax package includes lower personal income tax rates, elimination of sales tax on groceries, a Social Security income tax exemption, an increased standard deduction, and property tax relief. The governor has expressed concerns about any tax plan that could create revenue problems over the next three to five years.
Tax Planning Tips
Biden’s proposal to tax unsold assets is met with pushback. The plan would introduce a 25% annual minimum tax on unrealized capital gains for taxpayers whose incomes and assets exceed $100 million. For taxpayers earning over $1 million, this would put the total tax rate on long-term gains and dividends at 44.6%. Unrealized capital gains refer to increases in the value of an asset that has not been sold yet—this could include property, stocks, and anything else that can become more valuable over time.
Some entrepreneurs have expressed concern that this new tax would negatively impact startups and early-stage companies. Investors may hesitate to take a chance on growth-oriented businesses if they have to pay high taxes on their shares for years before seeing a return. Others note that most of the president’s proposed tax changes mainly target millionaires, such as raising the top individual income tax rate to 39.6% or the increase of the net investment income tax.
The IRS estimates that over $1 billion in unclaimed tax refunds is about to expire. By law, taxpayers have three years to claim their refunds before that money remains with the IRS. Due to the COVID-19 pandemic, the next deadline is not the typical tax filing date of April 15th but the extended deadline on May 17th. In order to claim this money, taxpayers must submit their 2020 tax returns by this date. Refunds may also be withheld if you have not filed your 2021 and 2022 tax returns or if you still owe money to the IRS or a state tax agency, such as unpaid child support.
The IRS approximates that about 940,000 Americans have an unclaimed refund with a median of $932. If this may apply to you, you will want to collect your tax forms as soon as possible, including your employer-issued W-2, 1099 for any non-employer income, and 5498 for any individual retirement account contributions.
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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.”
