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In The Headlines
- What do Selena Gomez, Kim Kardashian, Rihanna, and Reese Witherspoon have in common? Aside from their celebrity status, these women have also launched multimillion- and multibillion-dollar businesses outside of Hollywood. Rihanna tops the charts in the makeup world with her line Fenty, which is valued at $2.8 billion. Selena Gomez’s makeup line Rare Beauty is known for being vegan and cruelty-free and for donating 1% of all proceeds to Gomez’s charitable fund for mental health services and education. Kim Kardashian launched into the world of shapewear, co-founding Skims, which is now worth $4 billion. Reese Witherspoon is similarly rising in the world of fashion with her brand Draper James, which she recently sold at a profit.
- Food Network star Kardea Brown wants to bring Southern comfort food to your refrigerator. The host of TV show “Delicious Miss Brown” has partnered with Golden West Food Group to develop a new offering of frozen entrees that can now be found in Walmart stores across the country. Brown follows in the footsteps of TV giant Gordon Ramsay who launched his By Chef Ramsay line of frozen meals in September. Brown’s dishes include Southern classics like country kitchen fried chicken and sausage with grits, while Ramsay’s line has a clear UK influence with its shepherd’s pie and fish and chips.
- Travis Kelce joins teammate Patrick Mahomes and actor Ryan Reynolds in investing in the Alpine Formula One team. Kelce’s fame since becoming a Kansas City Chiefs tight end has skyrocketed since the athlete began a relationship with pop superstar Taylor Swift. Kelce’s face was already recognizable as a celebrity spokesperson for Nike, McDonald’s, and Papa John’s, which collectively earn the football player $5 million a year. Formerly known as Renault, the Alpine Formula One team hopes these celebrity backers will bring in new racing fans and new opportunities for media, sponsorship, ticketing, and other arenas.
What's New In The Tax World?
House Republicans propose a $14 billion reduction in the IRS’ budget to fund aid to Israel
Speaker of the House Mike Johnson brought forward a plan to redirect $14 billion in funds allocated to the IRS toward emergency aid to Israel. This would include $4 billion to provide Israel with two rocket interception systems named the Iron Dome and David’s Sling. The overall plan to provide aid is currently supported by both Republicans and Democrats, but the parties have differed greatly in their approach to finding the money. The GOP bill specifies that taxpayer services would not be cut, but the bill is not clear on what would be cut from the $80 billion IRS expansion package. So far, the IRS has put $2.4 billion of their new budget to work, improving customer service and increasing the percentage of taxpayer phone calls answered to 85%, up from $20 in 2022.
IRS commissioner Daniel Werfel has spoken out about the possible negative ramifications of cutting the agency’s budget. Werfel has stated that the Republican proposal would add $90 billion to the federal deficit over the next 10 years. The Congressional Budget Office puts their estimate lower at $12.5 billion added to the deficit over the next decade and $26.8 billion in lost tax revenue.
The IRS funds in question were approved in 2022 through President Biden’s Inflation Reduction Act. Much of this money is earmarked for increasing audits of the country’s wealthiest taxpayers and mega corporations. The nonpartisan Congressional Budget Office estimated that these efforts could recover $100 billion in tax revenue. The IRS is particularly targeting taxpayers earning over $1 million in income and with over $250,000 in unpaid tax debt. Last month the agency contacted around 1,600 of these taxpayers who collectively owe hundreds of millions of dollars.
Though the bill is progressing through the Republican-majority House, it would also need to be approved by the Democrat-held Senate before arriving in the Oval Office. President Biden has already indicated his intention to veto the GOP-supported bill and is seeking an alternative $106 billion humanitarian aid package that would send relief funds to Israel, Taiwan, and Ukraine. Senate leaders are also planning to introduce their own bipartisan bill.
State-By-State Updates
- Alabama residents will see a little income boost through a round of tax rebates. Just in time for holiday shopping, the state will begin remitting these one-time payments on December 1st. The governor spoke to the need to use taxpayer dollars to offset the financial struggles many families are facing in light of recent inflation. Taxpayers filing as single, head of family, or married filing separately will receive $150 via direct deposit or paper check, while married filing jointly will receive $300. The rebates will be tax-exempt on a state level.
- Arizona joins the ranks of states offering extra spending cash to its residents. Governor Katie Hobbs announced the Arizona Families Tax Rebate on October 31st that could provide up to $750 to eligible families. The exact amount will vary based on the number of dependents claimed—families can receive $250 for each dependent under age 17 and $100 for each dependent over age 17. About 750,000 families are expected to qualify. Taxpayers must either have claimed Arizona’s dependent tax credit on their 2021 individual income tax returns, paid at least $1 in state tax on their 2021 returns, or paid at least $1 on their 2020 or 2019 returns under the same filing status they used in 2021.
- Living in Chicago will cost a pretty penny, as many taxpayers will see a 15% uptick on their property tax bills. Many areas in Cook County in Illinois recently underwent property reassessments, which means new property values and new taxes due. A study showed that 72% of the taxing agencies handling Cook County’s reassessments increased property taxes. The north and northwest suburbs saw the biggest increases, averaging more than 15%. The total bump is estimated at $909 million, most of which will fund school districts. Taxpayers may be able to reduce their bills by checking if they are eligible for any exemptions, especially if they are senior citizens.
- Looking to enjoy a Milwaukee Brewers’ game? Your ticket will now come with a 3% additional tax. The ticket tax is attached to any events held at American Family Field, home to Wisconsin’s only Major League Baseball team. This 3% levy will add an average of 98 extra cents to each ticket and is expected to yield between $3.2 million and $6.5 million per year for the state. The funds from this tax will go toward a $546 million proposal to keep the Brewers in Wisconsin through 2050. In addition to baseball games, the field hosts winter events and summer concerts that will also be taxed.
Tax Planning Tips
The IRS’ latest mission: hunting down $1 trillion lost to overseas tax havens. Tax evasion has been a thorn in the agency’s side for some time, but with its newly-increased budget, the IRS is investing more time and resources in auditing wealthy individuals, complex private partnerships, and major corporations. According to the EU Tax Observatory’s latest global tax evasion report, multinational companies withheld about $1 trillion in profits in 2022 by stashing money in tax havens. This money amounts to about 35% of the companies’ foreign profits—revenue earned outside of the companies’ headquarter country. For tax agencies, the lost money equals about 10% of global corporate tax revenues.
A similar study from 2021 found that multinational corporations moved about $1 trillion to tax havens in 2016, according to the International Centre for Tax and Development. American companies were the main culprit, shifting about 50% of their foreign profits into tax havens, compared to 30% of non-U.S. companies. A group of African nations at the UN are now taking steps toward creating a global tax committee to solve this problem.
Americans can pad their nest eggs even more as the IRS announces a higher 401(k) contribution limit for 2024. Starting in January, employees can contribute up to $23,000 per year to their retirement plans, a $500 increase from 2023. This applies to 401(k), 403(b), and most 457 plans. The limit for combined employer-employee contributions will also go up to $69,000 in 2024, compared to $66,000 in 2023. While this boost may help many who are planning for retirement, this is a smaller bump than employees would have seen between 2022 and 2023 when the contribution limit increased by $2,000.
With the rise of inflation, recent studies have found that 62% of workers are saving less for retirement as money gets funneled toward higher cost-of-living expenses. This year, the Employee Benefit Research Institute found that 64% of employees feel they have enough money saved to live comfortably throughout retirement, which is down from 73% in 2022. The number also dropped among retirees—down to 73% compared to 77% in 2022.
The IRS also announced several other changes, including a new maximum of $275,000 for defined benefit plans and a new IRA contribution limit of $7,000.
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10 Ways Certified Tax Planners Can Prepare for Increased IRS Focus on Documentation During Audits
The IRS is ramping up scrutiny of high-net-worth individuals and businesses, increasing audit rates by over 50% for those earning above $10 million. Recent IRS initiatives backed by Inflation Reduction Act funding have intensified enforcement on wealthy taxpayers, large partnerships, real estate investors, and tech businesses. IRS agents are digging deeper during audits and expecting taxpayers to produce more documentation to support every position on their returns. To help clients navigate this environment, certified tax planners must take proactive steps to bolster documentation and audit readiness. Below are ten authoritative strategies, complete with industry examples, IRS policy references, and best practices, to prepare for the increased IRS focus on documentation.
Best Practices for Surviving (and Helping Your Client Survive) an IRS Audit
Few things strike fear in our clients’ hearts more than an IRS notice, especially one that says a client’s tax return is being examined or audited. While this must be dealt with on a timely basis, it is not a reason for you, the tax professional, or the client to panic. Here, I’ll discuss a range of best practices to ensure the success of your client’s case, plus what to do when things go awry.
If You Have an IRS Audit Coming Up, Make Sure You Have the Tax Law on Your Side
When you have to go toe-to-toe with the IRS, make sure you keep the fight clean. The only way to succeed when arguing your case with an auditor is to follow the IRS’s own procedures. And, the primary way to do that is—you guessed it—keeping proper documentation. With this article, you’ll better understand where tax authority is derived, what rules the IRS must stick to, and what rules the IRS accepts.
