SALT ALERT: The New York State Legislature Proposes Increases To Both Income And Corporate Tax Rates

 

New York State’s highest individual earners and largest corporations may soon see an increase in their tax rates, while managed care organizations may have to pay a new tax under budget resolutions approved on Thursday, March 14th by the New York State Senate and Assembly.

The budget resolutions outline the legislature’s spending and policy priorities ahead of the upcoming April 1st budget deadline, but also set the New York State legislature’s Democratic supermajorities at odds with Governor Hochul (D), who has called raising tax rates a “nonstarter.” It should be duly noted that New York already has one of the highest state and local tax rates in the country and elected officials are deeply concerned about increasing taxes that could cause even more New York residents to move to lower-tax states and / or no-tax states. New York State Comptroller DiNapoli warned about the significant number of taxpayers leaving New York State year-over-year since the COVID-19 pandemic started unfolding back in January of 2020. DiNapoli said New York has become increasingly reliant on nonresident tax filers, the majority of whom earn more than $ 1 million, and that those who move eventually take their incomes with them. However, the mass exodus out of New York State has not been confined to the ultra-wealthy as the highest level of taxpayer migration out of New York State occurred amongst individual taxpayers within the middle-class to the upper middle-class earning between $100,000 and $500,000 respectively. This is especially troubling as New York’s personal income tax collections are its largest revenue source and are heavily reliant on high-income earners that have been leaving New York at unprecedented levels starting in 2020 through the present.

Lawmakers in both chambers also backed a new tax on managed care organizations, which would allow New York State to get matching Federal-Level funds from the Centers for Medicare and Medicaid Services. The Assembly indicated “revenue generated by the state would be used to repay the tax obligation for each plan, but that it expects to get $4 billion in increased Federal Medicaid revenue”.

Have a question? Contact Peter Scalise, SAX LLP

Cryptocurrency, Digital or Virtual Currency and Digital Assets 2024 Legislation

Digital or virtual currencies are a medium of exchange, but are not regular money.

Unlike paper bills and coins, cryptocurrencies are not issued or backed by the U.S. government or any other government or central bank. The lack of a physical token to count and hold may confuse some. Rather, Bitcoin and other cryptocurrencies are a form of digital currency used in electronic payment transactions—no coins, paper money or banks are involved; there are zero to minimal transaction fees; transactions are fast and not bound by geography; and, like using cash, transactions are anonymous.

Digital currencies are stored in digital wallets, which are software or apps installed by users on their computer or mobile device.

Each digital wallet contains encrypted information, called public and private keys, that is used to send and receive the digital currency. All digital currency transactions are recorded in a virtual public ledger called the “blockchain,” which is maintained by digital currency “miners.” These miners can be anyone, anywhere in the world, who is willing to invest in the specialized computer hardware needed to rapidly process complex computations. Miners are awarded digital currency, like Bitcoin, Ripple, Dogecoin, and Litecoin, in exchange for verifying each transaction and adding it to the blockchain.

At least 35 states, Puerto Rico and Washington, D.C., have introduced or have pending legislation on cryptocurrency, digital or virtual currencies, and other digital assets in the 2024 legislative session.

Examples of enacted legislation include:

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Citizens Against Government Waste: The Prime Cut Series (#2)

Eliminate Community Development Block Grants (CDBGs)
1-Year Savings: $3.3 billion
5-Year Savings: $16.5 billion

In the 1970s, many American cities suffered from destitution and blight. In 1974, Congress created the CDBG program in an effort to revitalize low income areas in cities across the country. Three years later during the 1977 World Series, swathes of New York’s South Bronx burned to the ground as Howard Cosell narrated on national television.The CDBG program was intended for infrastructure investment, housing rehabilitation, job creation, and public services in metropolitan cities and urban counties. Use of the grants was intended to be flexible, but the more than $100 billion given away to local governments over the last 35 years has fallen short on both accountability and results. Buffalo, New York, has received more than $500 million in CDBGs over the last 30 years, with little to show for it. Los Angeles handed out $24 million to a dairy that went bust 18 months later.

The CDBG formula for eligibility does not take a community’s average income into account. As a result, several very wealthy cities with robust tax bases, like Greenwich, Connecticut, have received CDBG dollars. A September 2012 GAO report found that “some cities with higher unemployment rates received less funding per unemployed person than other cities with lower unemployment rates.”

Former President Obama routinely recommended reducing CDBG funding because “the demonstration of outcomes [is] difficult to measure and evaluate.” Former President Trump’s budgets between FYs 2018 and 2021 recommended eliminating the entire CDBG program. Despite its lengthy record of failing to achieve its objectives and wasting the taxpayer’s money, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law by then-President Trump on March 27, 2020, provided $2 billion for the CDBG program, which represents 60.6 percent of the $3.3 billion appropriated in FY 2023.

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Biden’s budget request for fiscal 2025 includes $12 billion for student loan forgiveness

President Joe Biden has unveiled his proposed budget for the 2025 fiscal year, set to begin on Oct. 1, and in it, he is calling for $12 billion in spending to forgive student loans.

The proposed $12 billion is set to go to a new federal program called Reducing the Costs of College Fund that would support federal strategies to improve college graduation rates and make costs more affordable for students. (Related: Biden DID NOT wipe away debt via student loan forgiveness program – he only redistributed it to other taxpayers.)

Along with funding ways the executive can lower college costs and improve graduation rates, the $12 billion will go toward increasing the maximum that Pell Grant – federal subsidies for college attendees – awardees receive to $8,145.

The proposed budget will also allow the federal government to offer tuition-free rides through community college and eliminate origination fees, or fees charged by lenders for processing a borrower’s loans.

Finally, the $12 billion proposal will fund other student debt cancellation measures into a $3.7 billion state and local safety proposal.

In addition to the $12 billion specifically set aside for the Reducing the Costs of College Fund, Biden is also asking for the Department of Education’s budget to be increased to $82 billion, a $3.1 billion increase from the 2023 level. The White House claims the funding boost would address a range of early and higher education priorities.

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Marketing: Finding A Tax Professionals Is Changing In 2024

For years, finding a tax professional with the requisite knowledge, skills and experience has remained the same. Ask a friend for a referral, look online to see who paid the most to appear in a top ad, spend time looking online and spend even more time looking through multiple links trying to find a tax professional with the specialty skills you need. Time and time again, taxpayers are unable to find a tax professional who has the best skills for the tax work that needs to be done.

For more than thirty years, we have been retained to find a tax professional for clients all over the world who want access to the most qualified tax professionals around the world. During this same time, we have been asked by the executives who have retained us to find a tax advisor who they can hire for their personal tax needs. This is why we have received inquiries like the following requests:

Example Case One

A U.S. Citizen wanted to purchase a MuzzBuzz Coffee Franchise in Australia for their son who moved there; however, they needed tax advice on how to structure the purchase of the franchise. We searched our tax  professional database and referred them to an Australian tax advisor.

Example Case Two

A Japanese Company CEO contacted a former Chapter President of a Colorado Enrolled Agent Association (He found the EA on our site) and asked if they would return his call. The Enrolled Agent was surprised and asked if the call was real. I told him to call the CEO who finally had a conversation with or EA member that he had a manufacturing facility in Colorado and needed tax advice. ( I do not know if he was hired but I do know the call was real).

Example Case Three

A CEO from Greece contacted TaxConnections and asked for a referral to a tax advisor in New York as he owned several large commercial buildings in New York City he was getting ready to sell and requested a referral to a tax advisor. (We referred him to a tax advisor in New York City who spoke Greek, Italian and English).

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2023 Congressional Pig Book Summary

The publication of the research by Citizens Against Government Waste is a valuable body of research with surprising information. TaxConnections will post the information from this organization in a series to gain public attention to where your tax dollars are spent. We encourage you to reach out to Congress with your thoughts and/or make your commentary below and we will compile your thoughts and deliver this to them.

INTRODUCTION
The United States is on a path to fiscal insolvency. The national debt has surpassed $33 trillion for the first time and is set to grow at a record pace over the next decade. A February 15, 2023, Congressional Budget Office (CBO) report forecast an average annual deficit of $2 trillion between fiscal years (FY) 2024 and 2033. The annual deficits during this period will add $20.3 trillion to the national debt, bringing it to $53.3 trillion by FY 2033. According to the CBO, the deficit in 2033 will reach 6.9 percent of gross domestic product, “a level exceeded only five times since 1946.”

Rising interest rates will make payments for interest on the debt a fast growing share of federal expenditures. If Congress does not reduce spending, more money will have to borrowed to fund federal programs, which will mean more interest payments. Each one percentage point increase in interest rates means $330 billion more in annual interest payments on a debt of $33 trillion. That amount is more than the combined annual budgets for the Departments of Commerce, Energy, Interior, and Justice. The fiscal morass has been caused by several massive spending packages,
including bills signed into law in response to COVID-19 starting in the Trump administration, but mostly due to the bills passed during the Biden administration. They added $6 trillion in pandemic-related spending, much of which had nothing to do with the pandemic. The American Rescue Plan Act, which cost $1.9 trillion and was passed on a partisan basis by a Democratic majority in Congress and signed into law by President Biden, added as much as 3 percentage points to inflation. This excessive stimulus resulted in higher inflation in the U.S. than the average in 10 Organization for Economic Development countries.

Other legislation has not improved the picture. The Infrastructure Investment and Jobs Act of 2021 (IIJA), signed by President Biden on November 15, 2021, came with a price tag of $1 trillion. Then, on August 16, 2022, President Biden signed the Inflation Reduction Act, a deceptively labeled bill that included $369 billion in climate change/Green New Deal spending, $80 billion to hire 87,000 new Internal Revenue Service agents, and the establishment of drug cost negotiations that will result in price caps for drugs purchased by Medicare, crippling innovation by biopharmaceutical companies. Even President Biden admitted the bill was misnamed, saying on August 11, 2023, that “it has nothing to do with inflation: it has to do with $368 billion, the single largest investment in climate change anywhere in the world …” To help mitigate the fiscal tsunami, Citizens Against Government Waste
(CAGW) is releasing Prime Cuts 2023, which has been published since 1993. The 2023 version contains 543 recommendations that would save taxpayers $402.3 billion in the first year and $4 trillion over five years.

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Grantor Trust Rules

From a tax perspective, 2024 has started off with an important pronouncement from an estate planning perspective – CCA 202352018. Many of you Forum attendees may recall that we have discussed at prior Forum programs the concept of gifting and/or selling property to a grantor trust. As part of that planning, it is common for there to be a discretionary tax distribution provision that can provide the grantor with the funds necessary to cover the grantor’s income tax obligation related to the trust’s income. Long ago, the IRS ruled in Rev. Rul. 2004-64 that if the decision to make such a tax distribution is discretionary and is made by a non-subservient trustee, the grantor’s right to the tax distribution does not cause includability of the trust’s assets in the grantor’s estate.

In the event a grantor trust does not provide for a discretionary tax distribution, and the grantor had “donor’s remorse,” the IRS had privately ruled in PLR 201647001 that the modification of a trust to add a discretionary trustee power to make a tax distribution was an “administrative” change that had no gift tax consequences. Unfortunately, the IRS had changed its mind, and, in the CCA, which appeared in advance sheets this morning and had a release date of December 29, 2023, the IRS indicates that adding such a provision at a later date constitutes a gift by the beneficiaries back to the grantor. How this gift would be valued is anyone’s guess, and the IRS almost admits as much in footnote 2 in which it states that “[a]lthough the determination of the values of the gifts requires complex calculations, Child and Child’s issue cannot escape gift tax on the basis that the value of the gift is difficult to calculate.”

Calculating And Collecting Sales Tax: Tips And Best Practices For Restaurants

Restaurants often find themselves under the tax audit spotlight – these businesses can be perceived as havens for a significant amount of cash movement. This notion, while not entirely unfounded, warrants closer examination, as it highlights the importance of meticulous financial management in the sector.

This all means that for restaurateurs, the potential consequences of non-compliance are daunting. In fact, in restaurant audits, a discreet tactic is used by auditors. They’ve been known to visit restaurants without prior notice, buying meals with cash to assess compliance and check if cash transactions are properly recorded and reported. These unannounced visits create anxiety and underscore the significant risks restaurants face during audits.

Are you a restaurant owner worried about your tax compliance duties? In this piece, we will explore some best practices, unravel the reasons behind the scrutiny, and equip you with the knowledge and strategies needed to ensure your “ducks are in a row” when it comes to tax compliance.

Here’s what we’ll be addressing:

  1. Understanding the application of Sales Tax to the Restaurant Industry:
    • What is Sales Tax?: Tax on restaurant food, varying by location. Owners must collect and remit it.
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Here Is Who Needs To File A Tax Return In 2024

Most U.S. citizens and permanent residents who work in the United States need to file a tax return if they make more than a certain amount for the year.

The IRS has a variety of information available on IRS.gov to help taxpayers, including a special free help page. Here are some specific details to help people if they need to file a tax return.

Factors That Affect Whether Someone Needs To File A Tax Return

Here are some of the things that affect whether someone must file a tax return.

Gross income. Gross income means all income a person received in the form of money, goods, property and services that aren’t exempt from tax. This includes any income from sources outside the United States or from the sale of a main home, even if you can exclude part or all of it.

Required filing threshold. People need to see if their gross income is over the required filing threshold. Filing statuses have different income thresholds, so individuals may need to consider their potential filing status as well.

There are five filing statuses:

  • Single
  • Head of household
  • Married filing jointly
  • Married filing separate
  • Qualifying surviving spouse

Find details on tax filing requirements with Publication 501, Dependents, Standard Deduction, and Filing Information.

Tax Year 2023 Filing Thresholds By Filing Status

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President Biden Proposes 12.3 Billion For Enhanced IRS In Fiscal 2025 Budget

On Monday, March 11th President Biden proposed a fiscal 2025 budget requesting $12.3 billion in annual funding supporting the IRS’s momentum as it builds up its enforcement efforts on both non-compliant high-net worth individuals and business entities alike.

While the proposed IRS annual funding for fiscal 2025 aligns with fiscal 2023 levels, it is a decrease from President Biden’s $14.1 billion proposal for the fiscal 2024 budget. The Biden administration drafted its fiscal 2025 budget so that total annual appropriations were in line with levels agreed to in a debt-limit law last year. The IRS Commissioner Danny Werfel has said that ‘it’s important for the IRS to receive robust annual funding to support the agency’s day-to-day operations, so that funds from the Inflation Reduction Act passed into law in August of 2022 can be used to properly modernize the IRS’. The additional $12.3 billion in annual funding will help bolster the IRS’s efforts to combat blatant fraud, update its technology systems and go after non-compliant taxpayers.

To review the Fiscal 2025 Budget in its entirety, please reference https://www.whitehouse.gov/wp-content/uploads/2024/03/budget_fy2025.pdf Read More

California Tax Incentives: California Manufacturing Exemption

The California Manufacturing Exemption allows certain manufacturing and biotech companies to exempt manufacturing and research and development (R&D) equipment purchases from sales and use tax.

  • Purchased equipment or machinery must be used 50 percent or more during the manufacturing process.
  • Equipment and machinery purchased and used for R&D qualifies.
  • In any given calendar year, the combined amount of purchase must not exceed $200 million dollars.
    Any purchases beyond the $200 million threshold will not qualify.
  • Only part of the state tax portion of the sales tax is exempt. The exemption currently amounts to 3.9375 percent of the purchase price of qualified property. Since the exemption is partial, recordkeeping will be key!

Companies benefitting from the California Manufacturing Exemption are those whose line of business falls into a qualifying NAICS code (3111 to 3399, 541711, or 541712), plus after January 1, 2018, those businesses engaged in business in NAICS codes 22111-221118 inclusive, and 221122.

The NAICS codes indicate the line of business the qualified company is primarily engaged in.

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Treasury, IRS Issue Guidance For The Elective Payment Of Advanced Manufacturing Investment Credit

WASHINGTON — The Internal Revenue Service (IRS) issued final regulations that provide guidance for the entities choosing the elective payment for the advanced manufacturing investment credit, established by the CHIPS Act of 2022.

The final regulations include special rules for partnerships and S corporations making the election. In addition, the final regulations provide rules related to the mandatory pre-filing registration requirement that were previously issued as temporary regulations.

This credit will incentivize the manufacturing of semiconductors and semiconductor manufacturing equipment within the United States. The credit is available to taxpayers that meet certain eligibility requirements, and there is the ability for taxpayers to make an elective payment election to be treated as making a refundable payment against the tax equal to the amount of the credit. A partnership or S corporation can make an elective payment election to receive a payment, instead of claiming the credit.

The final regulations provide guidance related to the mandatory IRS pre-filing registration process, which is available through pre-filing registration tool. The pre-filing registration process must be completed, and a registration number received, prior to making an elective payment election.

For more information, see Publication 5884, Inflation Reduction Act (IRA) and CHIPS Act of 2022 (CHIPS) Pre-Filing Registration Tool User GuidePDF.

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