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!
In The Headlines
- Meta’s flirtatious Taylor Swift and Scarlett Johansson chatbots were created without permission. Reuters recently flagged several chatbots created by users and by a Meta employee that used the likenesses of different celebrities and engaged in inappropriate behavior. “Parody” chatbots of Taylor Swift, Scarlett Johansson, Anne Hathaway and Selena Gomez were shared on Facebook, Instagram, and WhatsApp. Meta’s rules require parodies to be labeled as such to avoid “direct impersonation,” but some were found unlabeled. A legal expert posed the possibility that these bots would be covered by California’s right of publicity law. This law prohibits any person or company appropriating someone’s name or likeness for “commercial advantage.” SAG-AFTRA, a union that represents performance artists, also flagged the possibility of chatbots encouraging stalkers and creating even more of a safety risk for celebrities.
- Google wins out in a recent lawsuit and will not have to sell Chrome. U.S. prosecutors made a push to require the tech giant to sell its popular web browser, but a judge ruled in favor of Google’s parent company, Alphabet. This lawsuit was part of the Justice Department’s antitrust crackdown and attempt to disrupt potential monopolies. With this in mind, the judge did require Google to share its data with rivals to stoke competition in the online search arena. Google intends to file an appeal, stating that sharing its data would compromise its intellectual property. This appeal would likely delay the date when Google would have to take action on this ruling. Google is also facing a lawsuit to determine if the tech giant has illegal monopolies in online advertising technology.
- Importing drugs? That’ll be a 200% tariff, please. Though tariffs have been the talk of the town, not all foreign goods are subject to them. President Trump’s tariffs have largely focused on major imports like automotives, steel, and aluminum, but the president recently promised to extend these levies to pharmaceuticals. Historically, imported medicine has not faced tariffs. Recent trade talks suggest that a new 15% tariff may be placed on European pharmaceuticals, and President Trump suggested a 200% duty on drugs from other countries. Some experts worry that pharmaceutical tariffs could result in supply chain disruptions and shortages as fewer generic drugs from overseas become available. President Trump is also aiming to bring pharmaceutical factories back to the U.S. However, domestic drugmakers may still be impacted by the tariffs—currently, a vast majority of antibiotics, antivirals, and popular generic drugs contain at least one active ingredient that is manufactured overseas.
What's New In The Tax World?
Could a second federal tax and spending bill be in the works?
This July 4th, President Trump signed into law a new bill that extended many of the 2017 Tax Cuts and Jobs Act tax provisions and outlined a new spending plan. However, a number of soon-to-expire tax provisions did not make it into the bill. One way to address this would be to pass another tax package for fiscal year 2026. Congress would have to align on yet another reconciliation bill despite going numerous rounds in the House and Senate to pass the first one. Some analysts predict that the Republican-led Congress may try to push through more legislation before the midterm elections in case the majority shifts in the House or the Senate.
Which tax provisions might appear in this second tax package? One neglected tax provision is the Affordable Care Act’s premium tax credits, which help low-to-moderate income earners pay for health insurance purchased through the Health Insurance Marketplace. Allowing these tax credits to expire could affect the outcome of the midterm elections, since Republican lawmakers’ changes to Medicare already reduced access to public health insurance. Democratic lawmakers have already introduced legislation to renew the premium tax credits, warning that an estimated 20 million Americans will see a spike in health care costs without an extension. Of the potential tax cut extensions, this would likely be the most expensive, coming in around $30 billion per year.
Another expiring provision relates to the New Markets Tax Credit program. These credits are available to investors who make equity investments in Community Development Entities (CDEs). CDEs make loans and investments in businesses in lower-income communities and spur on job creation. Whether Republicans will tackle this in a second tax bill is unclear.
The Work Opportunity Tax Credit is yet another expiring tax credit available to employers who hire workers from groups that have faced significant barriers to employment. Launched in support of diversity in American workplaces, this tax credit could be eliminated in keeping with the Trump administration’s posture against DEI efforts or it could be reworked to focus on different groups as has happened with other tax credits and programs.
Other items that might make it into a new bill include changes to gambling loss deductions, a higher percentage for the qualified business income deduction, and the end of double taxation for Americans living overseas.
State-By-State Updates
- Alabama shoppers can enjoy two new tax breaks starting this September. Among a slew of new laws in the Yellowhammer State, this might be the widest reaching: lawmakers have reduced the sales tax on food from 3% to 2%. This change is expected to save residents $122 million per year. However, if local governments collect a sales tax on food, this new law will not change that. The bill did make it easier to reduce taxes by removing a restriction that prevented cities and counties from making cuts unless tax revenue had grown by 2% or more over the previous year. State lawmakers also removed sales tax for baby products, such as baby bottles, baby formula, baby wipes, breast milk pumping equipment, diapers, maternity clothing, and menstrual hygiene products. This 4% tax will be suspended for the next three years, and then legislators will have to decide whether to extend it.
- California taxpayers are being targeted by a new tax refund scam. The State of California Franchise Tax Board (FTB) recently issued a warning about a new text message scam impersonating the FTB. If the recipient clicks on the link in these messages, they will be redirected to a fraudulent version of the FTB website. Scammers use the site to steal personal details and credit card information. The text claims that if the taxpayer does not submit their information by the deadline they will permanently forfeit their refund. How can taxpayers tell if a message they received is a scam? Fraud experts encourage looking for suspicious domain names that do not end in “.gov.” Scammers also rely on a sense of urgency, so keep an eye out for tight deadlines and threatening language. Keep in mind that government agencies will not ask for personal information via text message. Fraudulent texts may also have strange instructions for opening links, grammatical and spelling errors, and incomplete contact information.
- Missouri makes history as the first state to nix capital gains tax for individuals. The recent tax bill introduces an exemption for profits on the sale of assets held for at least a year. This will apply to income received in 2025, which means it will impact state revenue for the current fiscal year. In future years, this tax cut for individuals is expected to reduce yearly revenue by $110 million. Corporations will also receive a tax break—their capital gains income will be tax-exempt if the top individual income tax rate drops to 4.5%. According to Missouri state law, this happens when revenue growth hits a certain threshold. The corporate tax cut would cost the state $180 million in revenue. A majority of Democrats did not vote in favor of the bill, expressing concern that the revenue cuts could put social programs in jeopardy.
- Oregon legislators move on a transportation tax package. Recently passed by the House, the bill aims to fund road maintenance and prevent layoffs at the Oregon Department of Transportation. As part of the tax package, a temporary payroll tax will be instituted to fund public transit. The current payroll tax will be doubled from 0.1% to 0.2% from 2026 until 2028. The gas tax would also be increased from $0.40 to $0.46, a hike that is expected to raise $90 million annually. Half of the gas tax goes to the state, 30% to counties, and 20% to cities. To supplement the gas tax, the state will also begin phasing in a mandatory road usage charge program for electric vehicles by 2031. The new program would require electric vehicle drivers to either pay 2 cents per mile in exchange for lower registration fees or pay an annual fee of $340. Additionally, registration fees will be upped for all vehicles. This bill now goes to the Senate for review.
Tax Planning Tips
Which jobs are covered by the new “no tax on tips” rule?
The Treasury Department has released a proposed list of 68 jobs that qualify for this tax deduction—the first time that the Trump administration has specified the exact occupations covered. Under the category of food and beverage service, these jobs are covered:
- Bakers
- Bartenders and Bartender Helpers
- Cafeteria and Dining Room Attendants
- Chefs and Cooks
- Dishwashers
- Fast Food and Counter Workers
- Food Preparation Workers
- Host Staff at Restaurants, Lounges, and Coffee Shops
- Non-Restaurant Food Servers
- Wait Staff
In the entertainment and events industry:
- Dancers
- Digital Content Creators
- Disc Jockeys (radio not included)
- Entertainers & Performers
- Gambling Cage Workers, Change Persons and Booth Cashiers, Dealers, Sports Book Writers, and Runners
- Locker Room, Coatroom, and Dressing Room Attendants
- Musicians and Singers
- Ushers, Lobby Attendants, and Ticket Takers
In the realm of hospitality and guest services:
- Baggage Porters and Bellhops
- Concierges
- Hotel, Motel, and Resort Desk Clerks
- Maids and Housekeeping Cleaners
Under home services:
- Appliance Installers and Repairers
- Cleaning Service Workers
- Electricians
- Heating/Air Conditioning Mechanics and Installers
- Landscaping and Groundskeeping Workers
- Locksmiths
- Maintenance and Repair Workers
- Plumbers
- Roadside Assistance Workers
Under personal services:
- Event Officiants
- Nannies and Babysitters
- Personal Care and Service Workers
- Pet Caretakers
- Private Event Planners
- Private Event and Portrait Photographers
- Private Event Videographers
- Tutors
Under personal appearance and wellness:
- Barbers, Cosmetologists, Hairdressers, and Hairstylists
- Exercise Trainers and Group Fitness Instructors
- Eyebrow Threading and Waxing Technicians
- Makeup Artists
- Manicurists and Pedicurists
- Massage Therapists
- Shampooers
- Shoe and Leather Workers and Repairers
- Skincare Specialists
- Tailors
- Tattoo Artists and Piercers
Jobs in the recreation and instruction sector also qualify:
- Golf Caddies
- Recreational and Tour Pilots
- Self-Enrichment Teachers
- Sports and Recreation Instructors
- Tour Guides and Escorts
- Travel Guides
Finally, jobs in transportation and delivery are named:
- Goods Delivery People
- Home Movers
- Parking and Valet Attendants
- Personal Vehicle and Equipment Cleaners
- Private and Charter Bus Drivers
- Rickshaw, Pedicab, and Carriage Drivers
- Shuttle Drivers
- Taxi and Rideshare Drivers and Chauffeurs
- Water Taxi Operators and Charter Boat Workers
The list will be published in the Federal Register and will be open for public comments.
Overtime pay is tax-exempt under the “Big Beautiful Bill”—but not all of it.
Under the new law, any earnings beyond a worker’s standard hourly wage will be tax-free. This means that if a worker earns time-and-a-half for overtime, only the “half” will be tax-exempt. Many have assumed that “no tax on overtime pay” refers to 100% of pay earned when working overtime, so this law will require more math and careful tracking to be applied correctly. Overtime pay will also still be subject to payroll taxes for Social Security and Medicare including state and local taxes, depending on where they live.
The overtime pay exemption is subject to a limit of $12,500 in deductions per year for single taxpayers and $25,000 for married taxpayers. Additionally, taxpayers earning over a certain income threshold do not qualify—the benefit phases out starting at $150,000 in annual income for singles or $300,000 for married couples. Under these restrictions, the Urban-Brookings Tax Policy Center estimates that about 9% of taxpayers will qualify for the benefit. This tax provision was also written to be temporary. For now, it applies to tax years 2025 through 2028.
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CURRENT EDITION
Lessons Learned from the Tax Court: The Root of the Issue
When is a business really a business? As Supreme Court Justice Potter Stewart said in 1964, “I know it when I see it.” The US Tax Court, however, maintains a slightly less subjective standard. The Roots were pretty sure they were running a bona fide business; the IRS, however, didn’t share the sentiment. And since we’re reading about them in a segment called “Lessons Learned,” one should assume it did not go the way the Roots would have liked.
The Lessons From The Supreme Court Zuch Opinion
There is a great scene in the movie On The Basis Of Sex. The actors portraying Ruth Bader Ginsburg and her husband, Martin Ginsberg, a very high-level tax attorney, early in their careers are reading in separate rooms. He comes in with something he wants her to read and she snaps that she doesn’t read Tax Court cases. In that moment she showed her future as a Supreme Court Justice. Not many Tax Court cases reach the Supreme Court. So when one does it’s exciting. And, as it happens, Commissioner of Internal Revenue v Zuch contains some practical lessons worth considering.
Fractional Art Investing Is Real — How To Advise Your Clients On The Tax Consequences
In mid-November a portrait of a young Vietnamese woman by the artist Gustav Klimt, which was part of the estate of the late Leonard Lauder (the cosmetics billionaire), was sold at a Sotheby’s auction for $236.4 million. It set the record for the most expensive work of modern art ever sold at auction according to Bloomberg. That’s probably out of reach for most of our clients. But what if they could join together to buy an interest in the painting with an entity holding the asset? That’s the idea behind the burgeoning fractional art market. While, in general, the art market has been struggling for a few years, the fractional art market has been expanding. According to the website Digital Original, “Fractional art ownership is no longer a niche concept – it’s a growing investment trend that’s accessible, flexible, and supported by cutting-edge technology.” What, you may be asking, does this have to do with taxes? It may be more than you think for your high-net-worth clients. As a trusted advisor it’s important that you are aware of both the types of investment opportunities your clients may be buying into and the tax consequences.
