Tax News & Views SALT and Cheeseburger Roundup

Trump Floats Easing Cap on State and Local Tax Deductions - Richard Rubin, Wall Street Journal:

A day ahead of a rally planned Wednesday on New York’s Long Island, Trump posted on his Truth Social network that he would “get SALT back,” a reference to the state and local tax deduction that Trump and Republicans capped at $10,000 per return. That cap, along with other major pieces of the law, is scheduled to expire at the end of 2025, making it part of a complex negotiation that the next president and Congress will navigate.

The tax falls disproportionately on upper-income residents in high-tax blue states, such as New York, and the cap is particularly unpopular on Long Island. Democratic-leaning New York itself isn’t particularly competitive in the presidential election, but the results in the state’s congressional races could tip the balance of power in the House.

Trump Suggests Restoring the State and Local Tax Break He Once Limited - Andrew Duehren, New York Times. "But allowing Americans to discount their state and local taxes fully from their federal tax bills would be costly. The Penn Wharton Budget Model puts the cost at roughly $1 trillion in decreased revenue over 10 years, and much of the tax benefit would flow to higher-income Americans who pay a lot in state and local tax."

Trump indicates he would lift cap on costly state and local tax deduction - Benjamin Guggenheim, Politico:

Trump’s pitch is the latest in a string of tax policies with populist appeal he has proposed recently, including to eliminate taxes on overtime pay, Social Security income and tips.

Together, they would add trillions to the government’s red ink, on top of an estimated $4.6 trillion for extending tax provisions from the 2017 Tax Cuts and Jobs Act that are set to expire at the end of 2025, and which Trump also says he wants to make permanent.

Treasury Finalizes Charging Station Tax Credit Rules

Treasury Lays Out Tax Credit Rules on EV Charging Stations - Erin Schilling, Bloomberg ($):

The proposed rules (REG 118269-23, RIN 1545-BR19) detail which electric vehicle charging stations and other clean fuel infrastructure, such as hydrogen fueling, are eligible for the section 30C credit. The credit was extended and modified in the Democrats’ 2022 tax-and-climate law known as the Inflation Reduction Act. It provides a credit for up to 30% the cost of installing a qualified refueling property. The credit is capped at $1,000 for individuals and $100,000 for businesses for each “single item of property,” such as each electric vehicle charger, placed in service.

...

The proposed rules describe property eligible for the credit as all functionally interdependent components of recharging or refueling property as well as any property that’s integral to charging and placed in service at the same place.

Treasury Issues Comprehensive Alternative Fuels Credit Guidance - Mary Katherine Browne, Tax Notes ($). "Proposed regulations (REG-118269-23) issued September 18 on the section 30C alternative fuel vehicle refueling property credit address the specific costs for property that is placed in service within a low-income community or within a nonurban census tract."

Now that you've paid your September estimated tax payment (you remembered, right?)

Proposed Changes to Individual Estimated Tax Payments - Adam Brewer, Tax Notes ($). "The IRS should produce monthly vouchers and make them available as both a free downloadable product and to tax software companies. In my experience, monthly vouchers are much more likely to be consistently used, as the amounts required to be paid are more manageable."

Endorsed. It would help to put the payments on a truly quarterly system as well. Current law typically calls for four equal payments, but one payment covers three months, the next two months, the next three months, and the last one four months. That complicates making 12 monthly equal payments. Most people pay their bills monthly, and I know gig economy taxpayers who already pay their estimates monthly online. So can you.

Campaign Tax Fallout

“No Tax on Overtime” Raises Questions about Policy Design, Equity, and Tax Avoidance - The Budget Lab at Yale:

Similarly, consider a front-line supervisor at a retail store who works 50 hours a week earning about $1,250/wk (~$65,000 annually). Because this worker falls within the “white collar” exemption and is not eligible for overtime pay under the FLSA, they would not benefit from the “no tax on overtime” proposal. Meanwhile, a medical records technician who falls outside of the “white collar” exemption earns just under $23/hr and typically works 50 hours a week. With her overtime pay she is also earning about $1,250/wk (~$65,000 annually). Under a “no tax on overtime” policy, while these two workers earn the same amount each year, the medical records technician wouldn’t have to pay taxes on more than $17,700 of their earnings while the retail worker would continue paying taxes on their full salary of $65,000.

Ways and Means’ Horsford Files First Dem Bill on Tip Taxes - Doug Sword, Tax Notes ($). "Five bills have been introduced so far to end taxes on tips. But the Tipped Income Protection and Support Act, introduced September 17 by House Ways and Means member Steven Horsford, D-Nev., is the most feature-heavy, including an income threshold of $112,500; a limitation to the food service, hospitality, cosmetology, and custodial services industries; and the elimination of the tipped workers minimum cash wage."

The Looming 2025 Tax Fight

Rich Americans Prep Fail-Safe Estate Plans Ahead of Election - Ashlea Ebeling, Wall Street Journal:

The maximum wealth someone can die with—or give away—without owing the estate tax is $13.61 million today. That limit is indexed for inflation, and projected to reach $13.99 million for 2025, according to Wolters Kluwer Tax & Accounting. With proper planning, a married couple can shield twice that from the estate tax. The top estate tax rate is 40%.

By giving away assets now to their children outright or in an irrevocable trust, the rich can essentially lock in the current estate tax exemption, potentially saving millions of dollars in taxes at death. An irrevocable trust generally cannot be changed unless all the beneficiaries agree, or a court approves the changes.

Next year’s massive tax battle has already started - Theodoric Meyer, Leigh Ann Caldwell and Alec Dent, Washington Post:

If Harris wins and Democrats retake the House and hold the Senate, the party would be able to fulfill her pledge to raise taxes on corporations and the wealthiest Americans to help pay for Harris’s priorities, such as a bigger child tax credit.

If Trump wins and Republicans recapture the Senate and hold the House, they would have the power to extend the tax cuts without compromising with Democrats — and possibly include some of the ideas that Trump has talked up recently on the campaign trail.

If neither party wins complete control of Washington, Republicans and Democrats will need to hash out a deal like they did in 2012 as the tax cuts signed by President George W. Bush expired.

Biden’s climate law got zero GOP votes. Some Republicans think its energy tax credits are worth saving - Rachel Frazin and Zack Budryk, The Hill:

The first year after the IRA’s 2022 passage saw investment in renewables equivalent to the prior eight years combined, according to an industry report.

Where project locations were known, 80 percent of those projects were being built in Republican-held districts, despite the party’s lack of support for the legislation.

Future of Energy Tax Credits Post-2024 Elections - Mel Schwarz, Eide Bailly:

While a full repeal of energy tax credits seems unlikely, it is wise to ensure that any project qualifies for potential grandfathering from potential changes.

Under current guidance, a project will be considered to have commenced and potentially protected from any changes if physical construction has begun or at least 5% of the eventual cost has been paid or incurred.

House Work

House Passes Bills on Veterans' Contributions, Tax Disclosures - Cady Stanton, Tax Notes ($):

The Taxpayer Data Protection Act (H.R. 8292), introduced by Ways and Means Committee Chair Jason Smith, R-Mo., passed in the House by voice vote. The bill would increase the penalties for disclosing taxpayer data without authorization to a maximum fine of $250,000 and up to 10 years in prison, designating each disclosure as a separate violation.

The legislation was inspired by the case of former IRS contractor Charles Littlejohn, who leaked the tax information of thousands of wealthy taxpayers between 2018 and 2021 and was sentenced in January to five years in prison. Republicans have criticized the Justice Department for charging Littlejohn with only a single count of unauthorized disclosure of income tax returns in his plea agreement.

The House passed a big tax bill in January that has yet to advance in the Senate, so don't hold your breath on this one.

Blogs and Bits

Undocumented immigrants in U.S. pay nearly $100 billion in federal and state taxes - Kay Bell, Don't Mess With Taxes. "In dollars, that comes to $96.7 billion, or roughly $9,000 per person, that was collected in taxes from undocumented workers in 2022. Most of that nearly $98 billion, or $59.4 billion, was paid to the federal government. The remaining $37.3 billion was paid to state and local governments."

IRS Finalizes Regulations on Consistent Basis Reporting Requirement for Estates - Parker Tax Pro Library. "The IRS issued final regulations that provide guidance on the requirement in Code Secs. 1014(f) and 6035 that a recipient's basis in certain property acquired from a decedent be consistent with the value of the property as finally determined for federal estate tax purposes."

First Crypto Tax Guilty Plea May Offer Future Enforcement Hints - Nathan Richman, Tax Notes ($):

Kathy Enstrom of Moore Tax Law Group LLC predicted more cryptocurrency tax charges in the future.

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The IRS started asking about digital asset transactions on Form 1040 in 2019... Enstrom said that the checkbox provides another piece of a tax return that CI can point to as false, if unchecked. That makes proving a criminal tax case much easier, she said.

IRS CID: Alba... Albi... Albuquerque

U.S. Attorney's Office and IRS announce sentencing of Albuquerque man for tax evasion scheme - IRS (Defendant names omitted, emphasis added):

An Albuquerque man was sentenced to 40 months in prison for devising and operating a tax evasion scheme and ordered to pay over $5.5 million in restitution.

There is no parole in the federal system.

According to court records, in January 2005, Albuquerque Man and Albuquerque Woman founded National Business Services, LLC in New Mexico, specializing in creating LLCs for clients seeking to "beat the IRS" by evading taxes. Albuquerque Man focused on marketing and client development, while Albuquerque Woman managed corporate filings and bank accounts.

The company obtained employer identification numbers (EINs) for clients and opened bank accounts under Albuquerque Woman's sole signature authority. From 2005 to 2015, they created 192 LLCs and opened 114 bank accounts, with approximately $41.7 million deposited into accounts under Albuquerque Woman’s control, representing concealed income.

One notable client.... had three LLCs formed by National Business Services while undergoing an IRS audit. Despite the audit, Client transferred his home into one of the LLCs to shield it from the government. Between 2011 and 2015, he deposited nearly $4.9 million into a bank account opened for one of his LLCs, concealing over $4.3 million in income without ever filing tax returns.

The Moral? Despite claims made on TikTok Tax, LLCs are not a magic way to wipe out your taxes. Also, Albuquerque is hard to spell.

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Tax News & Views SALT and Cheeseburger Roundup

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Joe B. Kristan, CPA