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
- Barbie’s box office debut is expected to rake in as much as $500 million worldwide on its opening weekend alone. Mattel’s stock prices have already leapt up by 18% over the past month. This is partly because of increased demand for Barbie dolls and themed merchandise, which triggers licensing fees. Fashion retailers are also jumping on the bandwagon with Gap and Forever 21 releasing Barbie apparel lines.
- What do high-rolling DJs and fashion moguls have in common? Both conspired to hide over $100 million from the IRS. Clients of international tax adviser Frank Butselaar allegedly used offshore entities to hide income that should have been reported on a U.S. tax return. Butselaar was charged with seven years of tax fraud. He now faces five years in prison for conspiring against the U.S. and another fifteen years for five counts of helping file false tax returns.
- The Powerball jackpot has jumped to $900 million, but ticket buyers can say goodbye to a quarter of it. Though the official prize is the third-largest amount in Powerball’s history, 24% of the winnings will be withheld by the IRS. If you opt to receive the prize money as one lump sum, this can also bump you up to a higher income tax bracket—which means you’re paying more federal and state taxes overall. Tax experts advise choosing the 30-year annual payments to give you more options for tax planning.
What's New In The Tax World?
As universities see an end to affirmative action, they may also see the beginning of higher taxes
A number of universities are ramping up their lobbying efforts to get rid of the 1.4% tax on university endowments. Introduced as part of the 2017 Tax Cuts and Jobs Act, the tax only applies to endowments that are worth more than $500,000 per student. Schools in this category include Princeton, Yale, and Harvard, which tops the list with its $50.1 billion endowment this year.
What does this have to do with affirmative action? The recent U.S. Supreme Court case that ruled against race-based admissions policies is drawing attention to other university practices, such as legacy admissions. In the past, lawmakers have put forward proposals to increase this endowment tax and use the funds for low-income students. Now with the pushback against the affirmative action ruling, these proposals are expected to get renewed attention from both sides of the political aisle. One Republican representative has already made plans to reintroduce a bill that would up the tax to a whopping 10%.
Unlike many of the 2017 tax laws, the endowment tax is not scheduled to end in 2025. However, like the other 2017 measures, Congress will be revisiting what makes sense to keep, alter, or nix entirely in the current economic and political climate. Some lawmakers have spoken in favor of a proposal that phases out the tax if more of the endowment is allocated toward financial aid for low-income students.
On a state level, Massachusetts has already responded to the Supreme Court ruling by writing a bill that would tax colleges that show favoritism to alumni and donors. Funds from this tax would go to community colleges. Other variations on this idea suggest allocating funds to historically Black colleges or low-income students, while other legislation has proposed banning legacy admissions altogether.
In light of recent scandals involving bribes and cheating to get students into elite schools, a similar bill focuses on ending tax breaks for donations made to influence admissions decisions. This bill would require universities to have an official policy that prohibits admissions staff from factoring in family members’ donations or ability to donate to the school in the future.
State-By-State Updates
- As Californians cut back on smoking, early childhood programs may see their funding plummet. Taxes on cigarettes and other tobacco products have financed the state’s early childhood services for 25 years. In recent years, the First 5 California programs have had to reduce their budgets and programming as a result of lower tobacco sales. This funding setup was originally meant to be temporary, and lawmakers are already hatching plans to replace the revenue with higher taxes on alcohol, marijuana, or sugary beverages.
- As estimated tax bills start to cause panic, Montana communities are hosting meetings to address residents’ concerns. In Lincoln County, for example, residential property values have increased by an average of 59%. The Department of Revenue is taking steps to better educate taxpayers on how these valuations are calculated and how that impacts taxes. Without changes to legislation, taxes in the state will go up—recent estimates suggest that the current property tax rate of 1.35% would have to be cut down to 0.94% to keep tax bills from increasing.
- Tennessee’s Greene County joins the growing list of regions increasing on property taxes. County commissioners hiked the tax rate by 30% for areas outside of Greenville. Officials referenced ongoing inflation and the need to pay state employees as reasons for higher taxation. Greene County joins Johnson City, Jonesborough, Greeneville, and Unicoi County as the local Tennessee governments that have taken steps toward raising property taxes, with most tax rates seeing a 25 to 30 cent increase.
- Texas is on the verge of approving a $18 billion tax relief package that includes lower property tax rates. Some locals have worried about how these tax cuts could affect funding for the state’s public schools, since property taxes make up most of that fund. Texas lawmakers have responded by setting aside state money for school districts, an unusual move for the Lone Star State. Schools will receive $12.3 billion from the state with future funds to come from sales and franchise taxes.
Tax Planning Tips
Over 800,000 student loan borrowers will be eligible for loan forgiveness—but how will this impact their tax bill? In the wake of the Supreme Court decision to override the Biden administration’s loan forgiveness plan, a new but less extensive plan has already been put forward. The new plan is expected to erase $39 billion in debt for borrowers who were on income-driven repayment plans.
This type of repayment plan is supposed to cancel any remaining debt after the borrower has made 20 or 25 years’ worth of payments (depending on the details of their loan). The Biden administration’s new plan fixes previous errors in calculating who has met that 20- or 25-year benchmark and qualifies for forgiveness.
The question savvy taxpayers are asking is whether there are any tax strings attached to this new loan forgiveness. In the past, borrowers whose debt was forgiven through income-driven repayment plans would be hit with a significant tax bill. Fortunately, under the American Rescue Plan of 2021, student loan forgiveness will be tax-free on a federal level through 2025. However, taxpayers should note that they could still see a state tax bill depending on where they live.
What are 401(k) catch-up contributions, and can they still help you reduce your taxes?
At the end of 2022, the IRS announced great news for avid savers: the limit for 401(k) contributions was increased from $2,000 to $22,500. This adjustment was made to help with the impact of ongoing high inflation and rising cost-of-living.
On top of this, 401(k) participants who are over age 50 can contribute another $7,500 through what’s known as “catch-up contributions.” Essentially, this is a way for taxpayers to make up for younger years when they might not have set aside as much money for retirement.
However, changes to these tax rules are coming in 2024. Starting next year, taxpayers who earn over $145,000 will have any catch-up contributions diverted into after-tax Roth IRA accounts. How will this change taxpayers’ potential tax bill? Retirement account holders will now pay taxes on these catch-up contributions while they are still working and therefore likely in a higher tax bracket than when they are retired.
However, these new tax rules do not apply to IRAs. So those looking to build their nest egg can consider contributing more to Roth IRA accounts. Though you will pay taxes upfront, you can enjoy tax-free growth and withdrawals in the future.
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Building a Strong Personal Brand as an Accountant: Strategies for Success
What is a personal brand?
If you asked me that question in 2018, I would not know how to answer it.
As I embarked on my journey to entrepreneurship, I took on any accounting-related project that came my way. I had yet to learn about the meaning of a personal brand. Fast forward to 2020, I launched my CPA firm just before the COVID shutdown. While established CPA firms could sustain or pivot to new services, I still had to figure out how to get clients, build my online presence, and establish trust to create my brand.
I learned on my journey that in today’s competitive landscape, a personal brand has become more critical than ever. Professional success is directly related to one’s brand, especially in service-based industries such as accounting. Surveys show that more business owners and young entrepreneurs are looking for accountants they can rely on for not only their technical skills and qualifications but also for a personal connection. Therefore, creating a solid personal brand distinguishes accountants from the rest of the crowd, enhances their credibility, fosters loyalty, and opens doors for new opportunities.
I will share my experience, dive into the significance of a personal brand for accountants, and provide actionable strategies to help you build a solid personal brand that resonates with your target audience.
Salt Miner’s Run for the Roses Ends with a Big Tax Bill
Judge Mark Holmes of the United States Tax Court expressed admiration for the achievements of Joseph G. Bucci Sr. whose American Rock Salt provides the salt to keep many of the streets in the Northeast passable in the winter. You can learn a bit about that from an interview in New York by Adriane Quinlan . The positive remarks were no help in the ultimate result. Judge Holmes agreed with the IRS that Bucci’s three side hustles — a real estate enterprise, a farm, and some racing horses — were “Activities not engaged in for profit” making losses unallowable. The total tab including accuracy penalties for 2016 and 2017 was $711,980. Judge Holmes explained the result in a bench opinion, which is less formal than a memo decision. The trial began in Buffalo on June 14, 2023.
Injured Spouse Relief
“It feels like a sucker punch to the gut.”
I was on the phone with a client who was a newlywed and filing with their new spouse for the first time. They kept their paycheck withholding as single. So, they were anticipating a larger than usual tax refund.
Like a lot of taxpayers, they spent their refund before they even received it. Each day, they were checking “Where is My Refund ?” and even their IRS account. Then, it happened.
Code 898: Refund applied to non-IRS debt .
It looked as if they wouldn’t receive that refund they already spent. Now, my client did not know what to do. Before getting married, my client’s spouse told them, “I never get a tax refund.”
But they failed to mention why they never got a refund. Honestly, they did not know what their refund was paying for. We later found out that each year the Treasury Department garnished the refund for back child support. My client knew their spouse had child support but did not know they were behind on it.
If you have a client in this situation, all hope is not gone. I could help my client find out what offset the tax refund. We could also get a portion of the refund back.
You can do the same thing for your client. That is assuming that one spouse is not liable for the debt that offset the tax refund. The IRS calls this injured spouse relief.
I’ll walk you through how you can help your client with their refund garnishment sucker punch. Yes, you can help them get their part of the refund back. Let’s start with what injured spouse relief is. Then we’ll look at who qualifies as an injured spouse and how to request injured spouse relief.