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In The Headlines
- Chef Gordon Ramsay heads to southern Florida to open his two newest restaurants. The Michelin-starred chef is launching a new Hell’s Kitchen restaurant in Miami that will feature several of his signature dishes like beef Wellington and sticky toffee pudding, as well as a signature cocktail called “Notes from Gordon” that will be accompanied by a personalized message from the chef. Additionally, Ramsay’s restaurant Lucky Cat will open in Miami Beach in 2024 after a several year delay.
- Pop singer Shakira will undergo a second investigation for alleged tax fraud. The Colombian native now lives in Miami but had previously been accused of tax evasion for 2012, 2013, and 2014. The question at hand was whether Shakira lived in Spain for more than 200 days, which would make her liable for the country’s taxes. The Grammy-winner is still awaiting trial for a supposed $16.2 million in owed taxes. The second set of charges brought against her are in regard to potential tax fraud in 2018.
- Vegan enterprises have been drawing in celebrity investments. Impossible Foods’ burgers, ground “meats,” and nuggets have received financing from Jay-Z, Trevor Noah, Katy Perry, Phil Rosenthal, Jaden Smith, Ruby Rose, and Serena Williams. Beyond Meat is slightly better known among pro athletes and can name Chris Paul and DeAndre Hopkins among its supporters, as well as Leonardo DiCaprio, Bill Gates, and Snoop Dogg. Some celebrities have even founded their own vegan companies: Jennifer Garner co-founded the baby and toddler-focused company Once Upon a Farm, and Cameron Diaz’s wine label Avaline is both organic and vegan.
What's New In The Tax World?
The Biden administration puts forth a proposal for new cryptocurrency tax reporting rules
The federal government has been looking to crack down on unpaid taxes related to cryptocurrency. The latest in these efforts is a proposal from the Biden administration that would require crypto brokers to report new information to the IRS, mainly around the sale or exchange of digital assets. Under this proposal, crypto exchanges and payment processors would have to follow the same reporting rules as brokers for bonds, stocks, and other financial instruments.
A key change is expanding the definition of “broker” to include both centralized and decentralized trading platforms for digital assets. The new rule would also cover both cryptocurrencies, such as Bitcoin and Ethereum, and NFTs (non-fungible tokens). The 2021 Infrastructure Investment and Jobs Act instructed the IRS to define which firms are considered crypto brokers and to provide these firms with forms and instructions for tax reporting. The Act also included digital assets as a new category that falls under the requirement for reporting for transactions involving over $10,000 in cash. When the Infrastructure Investment and Jobs Act was first passed, estimates suggested that this new rule could raise $28 billion over the following decade.
Along with this proposed requirement would come a new tax form, Form 1099-DA, which would help crypto users determine if they owe taxes without conducting overly complicated calculations. Brokers would have to send this form to the IRS and to any digital asset holders. This would take effect for brokers in 2025, meaning the forms would first be sent out during the 2026 tax filing season.
Currently, crypto users must report a variety of digital asset activities, such as trading, on their tax returns even if that transaction did not result in a capital gain. This new requirement aims to relieve the burden on taxpayers to make that calculation themselves and instead asks trading platforms to provide that information. Some commenters from within the cryptocurrency industry praised the proposal as a way to make it easier for crypto users to comply with tax laws, while others considered the new rules too confusing and likely to be unhelpful in improving tax compliance. The Treasury Department and the IRS are accepting feedback on the proposal until October 30th.
State-By-State Updates
- The verdict is still out on whether Colorado’s state tax refunds may be counted as income… on federal tax returns for at least some taxpayers. New guidance released by the IRS concerns payments sent to Colorado taxpayers through the Taxpayer’s Bill of Rights (TABOR) Amendment, which limits how much revenue the state government can collect. Taxpayers who itemized their tax returns are generally required to include state tax refunds as part of their income. About 10% of Colorado taxpayers could owe taxes on these state payments if this IRS proposal is upheld.
- Oregon taxpayers may see a refund equal to 45% of the state personal income taxes they paid last year… an average of $980 per person. This “kicker” refund would total $5.61 billion, far surpassing the previous record of $1.9 billion, which was issued in 2022. Introduced in 1979, the “kicker” law states that when state revenue from non-corporate sources totals at least 2% higher than forecasted taxpayers get the excess cash back in the form of a credit against last year’s taxes. Oregon is also expecting to see a corporate kicker, which will set aside $1.8 billion for K-12 education.
- Texas residents will no longer have to pay tax on period products and other health-related products. Starting on September 1st, menstrual products, diapers, baby wipes, baby bottles, and related items will be tax exempt. This includes purchases made online. Similar bills had been introduced in the Texas legislature previously, but the overturn of Roe vs. Wade in June 2022 gave priority to new measures to reduce costs for new parents. This bill is one of over 1,100 that were recently passed in Texas, ranging from legal protocol for handling feral cats to cost-of-living adjustments for the Teacher Retirement System of Texas.
- Wisconsin legislators are weighing a $3 billion tax cut package… aimed at reducing cost-of-living for the middle class. The Republican-backed bill would lower the state’s third income tax bracket from 5.3% to 4.4%, which would affect single taxpayers earning between $27,630 and $304,170 and married couples earning between $36,840 and $405,550. Another measure would make the first $100,000 of a single taxpayer’s retirement income (or $150,000 for a couple) tax-exempt, as long as they were over age 67. Republicans are proposing allocating a portion of Wisconsin’s projected $4 billion budget surplus to these tax cuts.
Tax Planning Tips
President Biden is racing to implement a 15% corporate tax as opponents rise up to challenge it. In 2022, the federal government approved the corporate alternative minimum tax, intended to increase the taxes paid by large multibillion-dollar companies in the U.S. Since then, lobbyists have ardently pushed back against the bill as Biden has been occupied simultaneously working to lower the federal deficit and move this business tax forward.
Democrats originally intended that funds from the corporate minimum tax would pay for the climate change and healthcare initiatives within the Inflation Reduction Act. The Joint Committee on Taxation estimated that about 150 corporations could be forced to pay the new tax, potentially yielding over $222 billion over the next decade. For this tax to be implemented, the government must first resolve a number of legal issues stemming from the fact that the new tax law was hastily written. The tax targets companies that earn $1 billion or more annually, but these companies are expected to calculate their own taxable income according to the new rules. The Treasury Department issued initial guidance last year, but the IRS is still finalizing the terms for how these calculations should be conducted.
The IRS highlights a tax-free way to pay student loans via employee educational assistance programs. As the pause on student loan payments comes to an end, borrowers are looking for ways to prepare for the financial hit. The office of Federal Student Aid estimates that as of March 2023 about 44 million borrowers collectively owed over $1.6 trillion in federal student loans.
An often-overlooked employee benefit, educational assistance programs were first introduced in 1978, but the option to use them to pay student loans began on March 27, 2020 and will continue to apply to payments made by December 31, 2025. Employers can make tax-free payments directly to lenders on behalf of their employees—a benefit that could draw in well-educated workers in a tight labor market.
Educational assistance benefits are capped at $5,250 per employee per year. To qualify for the tax exemption, the program must be set up as a written benefits plan—similar to the employee health care, retirement benefits, or commuter plans that many companies already offer. The plan cannot discriminate in favor of highly compensated employees, and employees cannot be forced to choose between accepting these benefits versus other taxable compensation.
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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.”
