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
- Amazon will be delivering something new this fall—your 2024 election news. Former NBC Nightly News anchor Brian Williams will host a live newscast on Amazon Video providing election results and analyses. The show will also feature expert commentators from diverse backgrounds and will likely rely on data from The Associated Press or Reuters to track updates on Election Day. “Election Night Live With Brian Williams” will be available to all Amazon customers, even without a Prime subscription. Amazon has previously dipped its toe into the world of live programming, but this show will serve as a test case for the inclusion of live news on its streaming service.
- Matthew McConaughney’s organic tequila is hitting the shelves of a liquor store near you. The Academy Award winning actor and his wife Camila Alves own Pantalones Organic Tequila, which is set to expand to stores and bars across the U.S. McConaughney is far from the first celebrity to put his name and star power behind an alcohol brand. Ryan Reynolds, who has become known as a serial entrepreneur, invested in Aviation Gin in 2018 and earned as much as $122 million when it was sold to Diageo. George Clooney and Dwayne “The Rock” Johnson join McConaughney in the tequila game as founders of Casamigos Tequila and Teremana Tequila, respectively. In 2023, Casamigos ranked fourth among the best-selling tequilas in the U.S. and was also purchased by Diageo for $1 billion.
- Bankruptcy hits the hardware sector as True Value files for Chapter 11. After more than 70 years in business, the retail chain plans to sell its privately held assets to competitor Do it Best. True Value is a member-owned wholesaler cooperative that sells its products to over 4,500 stores worldwide. Individual True Value stores are independently owned and are not part of the bankruptcy filing. This is the latest in an ongoing wave of bankruptcies. Thus far in 2024, commercial bankruptcies have risen by 20% compared with the same time last year, representing about 22,550 businesses. The most common reasons, according to these companies, include inflation, higher interest rates, and long-lasting after-effects of the pandemic.
What's New In The Tax World?
The Trump campaign touts ten tax cut promises, not including the ongoing conversation about tariffs
At a recent campaign stop, Republican presidential candidate Donald Trump added a tax break for car loan interest to his list of proposed tax changes. In response to the price increases car buyers have seen in recent years, this would make interest on automotive loans tax-deductible. This marks the tenth tax cut former president Trump has put forward so far.
Other tax cuts mentioned on Trump’s campaign trail include:
- An extension of the tax cuts introduced through the Tax Cuts and Jobs Act (TCJA) of 2017 during Trump’s previous presidential term—major provisions include lower personal income tax brackets for several income levels, a 20% deduction for pass-through businesses, bigger standard deductions, and higher estate and gift tax exemptions
- A lower federal corporate tax rate—TCJA lowered the rate to 21%, but Trump has advocated for an even-lower 15% rate
- A reversal of TCJA’s $10,000 cap on state and local tax (SALT) deductions—this provision is already set to expire at the end of 2025 if Congress takes no action. Letting the SALT cap expire would especially benefit homeowners in high-tax states.
- A tax break for U.S. citizens living overseas—Trump spoke to the “double taxation” that occurs when Americans are required to pay taxes both to the U.S. government and in the country where they currently reside.
- The elimination of taxes on tip earnings
- The elimination of taxes on overtime pay
- The elimination of taxes on Social Security benefits
- Tax breaks for “working families”—this has come with the least specifics so far but could include a revised version of a child tax credit
Altogether, estimates suggest that Trump’s tax proposals could increase the national deficit by $7.5 trillion over the next decade. The former president continues to promote tariffs as a means of generating the revenue needed. However, recent Tax Policy Center projections say that the suggested tariffs would yield only $2.8 trillion over the same time period.
Democratic nominee and current vice president Kamala Harris is also putting forward a number of tax proposals, including an elimination of taxes on tips, tax credits for first-time homebuyers, and a limited extension of certain TCJA tax cuts with the exception of the provisions that benefit Americans earning over $400,000 a year. Harris’ plan is likely to increase U.S. debt by $3.5 trillion through 2035.
State-By-State Updates
- Coloradans can vote on a number of tax-centric measures, including a tax increase to fund affordable housing. Colorado voters will weigh 14 statewide ballots this November. Included on the list is a new tax on retail sales of firearms and ammunition, a property tax exemption for veterans, and an increase of the amount of tax revenue the state can keep from sports betting proceeds. Additionally, residents of Adams County will vote on a 0.15% sales tax increase to support new affordable housing units. The tax hike would generate about $22.2 million per year and add 6,000 homes in the area over the next 20 years. The sales tax would not apply to basic needs like food, personal hygiene, feminine hygiene products, clothing, or even standard yard and farm equipment.
- Will Georgian voters say yes to a property tax cap? Lawmakers have put forward a proposed state constitutional amendment that would limit how much the value of a home can increase each year for the purpose of property taxes. Supporters point to the recent astronomical property tax increases as property assessments in Georgia rose by almost 39% between 2018 and 2022. However, opponents to the amendment say that the cap would shift the tax burden onto new homeowners, renters, and other property holders. The measure also allows city and county governments to increase sales taxes by one cent per $1 of sales to replace property taxes.
- Iowa’s projected revenue may fall short by about $200 million, partly influenced by recent tax cuts. The state is expecting to collect less money in the coming year than it is planning to spend—an estimated $8.7 billion in revenue versus $8.9 billion in budgeted expenses. One of the contributing factors is declining state income tax revenue, spurred on by a recent income tax reduction. Beginning in 2025, most taxpayers will see a 3.8% state income tax rate, compared to previous years when tax brackets ranged from 4.4% to 6%. Overall, personal income tax collections are expected to drop by 12.3% or about $687 million. Iowa lawmakers will need to consider whether to reduce state spending or pull money out of its state reserves.
- The Senior Tax Freeze Credit kicks in this year for residents of St. Louis, Missouri. The program limits how much property taxes can increase in the future for senior citizens. Taxpayers must apply to receive the credit. As of recent data, 6,600 St. Louis residents have been approved for the credit. These seniors should expect to see an increase on their 2024 tax bill due to increased school taxes and other district taxes—the credit will offset less than 10% of this increase. Seniors who own a multi-family building will also receive the credit for the unit they reside in. Similarly, seniors who own a mixed-use residential and commercial property only see a tax freeze on the residential portion. Applications for the credit are set to be reopened on March 1, 2025.
Tax Planning Tips
A proposal to fund Social Security benefits could mean a higher tax for high-income earners. A recent study by the University of Maryland polled voters in six swing states on whether they would support extending the Social Security payroll tax to all wages over $400,000 to make up for the current shortfall. If no action is taken, these retirement and disability benefits will be depleted by 2035.
The survey found that 86% to 89% of respondents would support this tax adjustment, which could eliminate 60% of the Social Security shortfall. As of 2024, any income over $168,600 is not taxed for Social Security—this threshold will rise to $176,100 in 2025. If the proposal were instated, income over $400,000 would once again be subject to the 6.2% payroll tax, creating a “donut hole” where income between $168,600 and $400,000 is exempt.
Other proposals to address the shortfall include raising the retirement age, adjusting the payroll tax rate, changing the benefit formula, or introducing means testing to reduce or eliminate payments to wealthy retirees.
529 savings accounts can save parents on taxes—or result in an unexpected tax bill. These college education expense plans allow taxpayers to invest money in mutual funds and other securities and then withdraw the money tax-free as long as it is used to pay for qualified higher education expenses. This can include tuition, room and board, books, and computers. Students should note that if the money is spent on non-qualified expenses, the taxpayer will incur a 10% penalty on top of the usual income taxes.
However, a 2023 analysis conducted by J.P. Morgan found that if a taxpayer overfunds a 529 plan, they can end up with a hefty tax bill if there is still money in the account after the beneficiary graduates. Leftover funds can be transferred to relatives in the same generation, but the plan will lose its tax efficiency if they attempt to save those funds for future generations because the money would then be considered a gift. Fortunately, up to $10,000 in a 529 plan can also be used toward qualified K-12 education expenses or to repay student loan debt.
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2025 Tax Surprises You Shouldn’t Overlook
There are a few tax rules new for 2025 that may catch some individuals and their tax advisers by surprise. These changes have not received lots of attention either because they are overshadowed by related changes that are more significant, or they were enacted a few years back with a future effective date that arrives in 2025. This article covers changes for 2025 that you will want to be sure to share with clients to avoid surprises at a later date.
Leaving the United States, Part I: Expats
When Americans speak of leaving America, they generally are expressing a desire to live elsewhere in the world for cultural reasons or due to cost of living. These people are called expatriates, aka expats. For clarity, a mere visit to another country does not make you an expat. To be an expat, the move needs to be long-term and often includes working or retiring in the new country. Expats live somewhere outside the U.S., but still have a tax obligation to the U.S. and possibly the country they move to. That will be the focus of this article.
Tax Preparer Hit with Stiff Sentence
John Anthony Castro is a colorful character. He entered several Republican primaries seeking the Presidential slot after failing to win the primary for a Senate seat representing Texas. He sued to have our once and future President Donald Trump be removed from the ballot on Fourteenth Amendment Section 3 grounds. As we can easily infer, those suits went nowhere. But more than anything, John Anthony Castro was a tax guy with a virtual practice with locations in four cities. Not anymore. Now he is resident in a Bureau of Prisons facility – the Federal Medical Center Fort Worth. On October 30, 2024, Judge Terry Means sentenced Castro to 188 months in prison, followed by one year of supervised release and restitution of $277,243, following his conviction on 33 counts of “Aiding and Assisting in the Preparation and Presentation of a False and Fraudulent Return.” Does the sad story of John Anthony Castro hold any lessons for us? Perhaps.
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