Archive for April 25, 2024

Biden Proposes Highest Capital Gains Tax in Over 100 YEARS

Biden Proposes Highest Capital Gains Tax in Over 100 YEARS

Bidens 2025 budget proposal raises the top marginal rate on long term capital gains and qualified dividends to 44.6 percent.

The Biden administration has proposed the highest top capital gains tax in over a century.

According to Biden’s 2025 budget proposal the top marginal rate on long-term capital gains and qualified dividends would rise to 44.6%.

The proposal, which marks the highest tax increase since the creation of the capital gains tax in 1922, could significantly curtail the financial returns of investors in stocks and crypto.

“For example, a taxpayer with $1,100,000 in taxable income of which $200,000 is preferential capital income would have $100,000 of capital income taxed at the preferential rate and $100,000 taxed at ordinary rates,” the proposal states.

Additionally, the proposal when combined with state capital gains tax would exceed 50% in many (mostly blue) states and would not account for inflation’s erosion of purchasing power.

From Americans for Tax Reform:

Under the Biden proposal, the combined federal-state capital gains tax exceeds 50% in many states. California will face a combined federal-state rate of 59%, New Jersey 55.3%, Oregon at 54.5%, Minnesota at 54.4%, and New York state at 53.4%.

Worse, capital gains are not indexed to inflation. So Americans already get stuck paying tax on some “gains” that are not real. It is a tax on inflation, something created by Washington and then taxed by Washington. Biden’s high inflation makes this especially painful.

Many hard working couples who started a small business at age 25 who now wish to sell the business at age 65 will face the Biden proposed 44.6% top rate, plus state capital gains taxes. And much of that “gain” isn’t real due to inflation. But they’ll owe tax on it.

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Canada Just Passed Law Increasing Exclusion Rate For Capital Gains To 66.6%

Canada's Trudeau Wants To Raise Capital Gains Taxes To 66.6 %

Here is word for word a copy of an email sent to my inbox recently.  Beware of all the swearing in case you may be offended. These are the types of emails I receive.

“My home and native land has officially gone to hell… And in this case, I mean it literally.

Canada just passed a new budget act upping the exclusion rate for capital gains to 66.6%

“By increasing the capital gains inclusion rate, we will tackle one of the most regressive elements in Canada’s tax system,” the government said in the budget document. The current 50% inclusion rate on capital gains disproportionately benefits the wealthy, who earn relatively more income from capital gains compared to the middle class, the government said.

It’s incredible they think that a “50% tax” is the wealthy getting off easy, and that they needed to fix the situation by raising it to 66.6%.

My inbox has exploded with private client work over this, and of my 8 consulting calls yesterday, 7 of them discussed this (even my American clients are looking to protect themselves if something like this comes to the US.)

Quickly, I want to say that if you are sitting on large capital gains in Canada, you should consider realizing those capital gains before June 25th, 2024; basically before this goes into effect.

And while you’re at it, I would tell these Satan worshippers to go fu8k themselves and move your money offshore.”

What do you think?

Written by | Posted in TaxConnections

What Is The BEAT For MNEs?

What Is The BEAT For MNEs?

According to Senior Economist, Alan Cole at the Tax Foundation, BEAT is the acronym for Base Erosion and Anti-abuse Tax.

“Base erosion is the loss of corporate income tax revenues from global companies due to profit shifting. BEAT is intended to address a legitimate problem, and there are virtues to BEAT’s overall strategic approach; however, its execution leaves room for improvement.

BEAT concerns the tax treatment of cross-border tax payments made by a multinational enterprise (MNE) to related companies abroad. Now, since the companies are related—that is, they have the same ownership—it does not change the total income of the group. A loss for one part of the MNE is a gain for another. But it does have tax implications: cross-border payments create a deductible expense in one country and income in another, reducing taxable income in the first country and increasing it in the second. The practice of accounting for cross-border transactions is known as transfer pricing.

While transfer pricing is a necessary part of doing business, and deductibility is a normal feature of traditional income tax systems, MNEs have an incentive to use transfer pricing to create deductions in the U.S. and income in the low-tax jurisdiction. This functionally shifts the profits to that low-tax jurisdiction, reducing the overall tax burden for the company and “eroding” the U.S. tax base.

An MNE cannot simply arbitrarily shift profits around with any payment it desires. Regulations for transfer pricing require that cross-border payments follow an “arm’s length principle”—that is, they must be priced as if the two related parties were independent and negotiating based on their own interests, hopefully resulting in accounting that reflects economic substance.

In practice, though, certain categories of transactions are quite subjective, leaving MNEs some wiggle room to shift profits. For example, payments for commodities are relatively objective, while royalties—payments for unique intellectual property—are much less objective, allowing the wiggle room to shift profits. As a result, base erosion is associated with certain categories of expense far more often than others.”

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Event Waivers And Releases

Event Waivers And Releases

Written waivers and releases (generally, here, a “Release”) have become ubiquitous in the American way of life – axe throws, bounce houses, rock climbing parks, mechanical bulls, little league registration, school activities, soccer clubs, trampoline parks, church events, etc.  Americans sign Releases all the time and few who sign likely take the time to actually read, much less appreciate, what it is they are signing.

For the event organizer, it is usually better to have a well-crafted Release and not need it, than to need one and not have it.  Whether to include and administer a Release for an event or other business activity is a business decision.

For the entity desiring to install a Release into an activity’s execution, the Release should be carefully tailored to address the specific activity and risks involved. For example, if the Release contains an assumption of risk, the risks should be – from a best practices perspective – updated on a case-by-case basis to reflect the actual activity made the basis of the Release.

For sports activities (for example), common risks include falling, collision with other players or objects, exposure to temperature extremes or inclement weather, fatigue, dehydration, failing to play safely or within the limitations of one’s abilities, negligence of participants or others. Other activities, such as mechanical bulls or rock climbing, may have other or different risks to disclose.

The actual release provision is important. Some Releases purport to release certain individuals from their own negligence or even gross negligence or willful misconduct. The greater the scope of the release provision, the greater the scrutiny that may be applied when it is sought for enforcement. Also, many times a Release provides that the signer is releasing or waiving claims of or for another, but in reality, it is someone else, such as the signer’s minor child, who is the actual participant in the activity.

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Written by | Posted in Event Waivers And Releases • TaxConnections

Learn IRS Site Publications On Tax Credits That Are Not Easy To Find

Learn IRS Site Publications On Tax Credits That Are Not Easy To Find
Earth Day was April 22, 2024, TaxConnections takes responsibility for the delay in publishing..oops! Professor Annette Nellen at San Jose State University published this post originally on her 21st Century Taxation blog site. She starts the post with this statement:
Earth Day started in 1970 and one of the co-founders was Gaylord Nelson, who served as a Senator from and Governor of Wisconsin. He was also an alum of San Jose State University.
How about some individual tax credits to help reduce fossil fuel use? The Inflation Reduction Act of 2022 added a used clean vehicle tax credit and modified credits for new clean vehicles and residential improvements. See this 8/21/22 post for some information on the IRA and track changes to IRC Sections 25C, 25D, 25E, and 30D to learn more about these changes.
A helpful item I’ll share here are some IRS publications on these credits that are difficult to find (they are not listed at the main IRS websites for each of these credits, which I have linked below).
Section 25C, Energy Efficient Home Improvement Credit AND Section 25D, Residential Clean Energy – Publication 5797.  This has a brief summary of each credit and a QR code to get more information. Also see main IRS website on these credits.
Section 30D, Clean Vehicle Credit – Publication 5866, which is a helpful checklist of qualifications.
Section 25E, Previously-Owned Clean Vehicles – Publication 5866-A, also a helpful checklist of qualifications.
Also see the main IRS website on clean vehicle credits (new and used).
And a publication on each of the energy credits for individuals – Publication 5886-A.
Finally, an Earth Day reminder from the Social Security Administration – Opt Out of Paper Notices.
Your commentary is appreciated below.  Post contributed by Professor Annette Nellen, San Jose State University. San Jose State University has a great tax program.
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