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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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.

IR-2024-62

Tax Advisors: Why It Is Smart To Shift Your Marketing Strategy Now

According to former CIA Analyst Andrew Bustamonte, nine out of ten people do not take- action when advised to do so. However, “the people who do take- action first gain a competitive edge, a forty percent lead, over those who fail to act first.” Early adopters of new technology tend to be trendsetters and innovators who have early access to new technologies to increase their customer base with more practical solutions. If you are in the business of marketing your expertise or your firms’ expertise, as an innovator you are more likely to try out newer ways to increase your customer base.

While most struggle with old ways of marketing that no longer produces the desired result; early adopters who try new solutions to get ahead in business gain the competitive advantage. It is well-known early adopters are most in tune with what is happening in the world of technology, and they are on the cutting edge, willing to invest the time and budget to try new solutions. Early adopters drive the way for the rest of the industry to find better solutions they need to be more successful in the profession.

Back in 2010, an email came to my desk with an offer to buy Bitcoin at .05, and I did not take action on that opportunity. Today, that same Bitcoin is worth $72,551.40. What I am about to share with you is another opportunity that early adopters have the potential to benefit from. The early adopters who take action will have the advantage over competitors who are searching for ways to market their tax expertise.  I missed an opportunity because of my failure to be an early adopter of something new.

The tax industry, a niche business vertical, is facing the most competitive marketplace in history. As a result, tax advisors are required to raise their visibility, showcase their specialty tax expertise, and cultivate brand awareness to stay competitive.

TaxConnections Marketplace is where talented tax advisors are discovered by high-net-worth individuals, and business executives in small, medium, and large companies worldwide needing a wide range of specialty tax expertise.

TaxConnections Marketplace is implementing artificial intelligence into its platform to enable our AI Brain to search through our tax professional members profiles to identify the advisors with specialty tax expertise our visitors are searching to find around the world.

Artificial intelligence is advancing at a rapid pace and there are technologies emerging that will have a great impact on the tax profession. TaxConnections is working on a conference Thursday, October 24, 2024, about the new technologies, tax, and AI innovations. We are launching our own AI innovations for the world to see. We are making it easier for the world to find your tax expertise online. For this reason alone, you will benefit as an early adopter of our solutions by becoming a Tax Professional Member now in our global tax marketplace.

In the meantime, we want you to know this about AI, “The key factor regarding Artificial Intelligence (AI) is that it is a system that does not possess critical thinking or reasoning skills. It generates text or information that stems from a base of information supplied to the system. Any received “input” becomes available for output.”

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Taxpayers Should Report Digital Asset Transactions, Gig Economy Income, Foreign Source Income And Assets

The Internal Revenue Service reminds taxpayers they’re generally required to report all earned income on their tax return, including income earned from digital asset transactions, the gig economy and service industry as well as income from foreign sources.

Reporting requirements for these sources of income and others are outlined in the Instructions for Form 1040 and Form 1040-SR. The information is also available on IRS.gov.

This release is the third in a four-part series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. Additional guidance is available in Publication 17, Your Federal Income Tax (For Individuals).

Digital Assets, Including Cryptocurrency

A digital asset is a digital representation of value that is recorded on a cryptographically secured, distributed ledger. Common digital assets include:

  • Convertible virtual currency and cryptocurrency.
  • Stablecoins.
  • Non-fungible tokens (NFTs).
Everyone Must Answer The Question

Everyone who files Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120 and 1120-S must check one box answering either “Yes” or “No” to the digital asset question. The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023.

Checking “Yes”: Normally, a taxpayer must check the “Yes” box if they:

  • Received digital assets as payment for property or services provided;
  • Transferred digital assets for free (without receiving any consideration) as a bona fide gift;
  • Received digital assets resulting from a reward or award;
  • Received new digital assets resulting from mining, staking and similar activities;
  • Received digital assets resulting from a hard fork (a branching of a cryptocurrency’s blockchain that splits a single cryptocurrency into two);
  • Disposed of digital assets in exchange for property or services;
  • Disposed of a digital asset in exchange or trade for another digital asset;
  • Sold a digital asset; or
  • Otherwise disposed of any other financial interest in a digital asset.

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Request A CPE Course For Your Firm Members: The Best Retention Strategy For Your Tax Team Is A Great Education

With years of experience communicating with tax professionals on why they stay with their organizations and why they leave, I know the number one retention strategy is training your team members. Training is what staff members want and as CEO and Founder of TaxConnections Executive Search Services Division, it catches my attention when I see a firm like Source Advisors offering to provide complimentary education services to CPA firms and corporate tax organizations, I take notice. Now is the time to contact Eric Larson at Source Advisors to schedule a training day or session for your team for free. Why does Source Advisors do this? They want to engage with you and your firm in case you have specialty work to outsource like R&D Tax Credits to do under your own label. Source Advisors is a specialty tax firm that many CPA firms outsource their work to ensure it is completed by leading experts in the profession.

Take a look at the education they want to provide your tax team:

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Why Outsourcing Sales Tax Compliance Is The Smart Choice

Efficiently managing sales tax compliance is an essential component of modern business operations. Companies often grapple with the ever-evolving landscape of tax laws and regulations, making the decision to outsource sales tax compliance a strategic move. This article delves into the reasons behind this choice and explores the wide-ranging benefits it offers to businesses striving for streamlined taxation operations and sustainable growth.

Here’s what we’ll be covering:

1. Cost Savings and Efficiency:

    • Discusses the financial benefits of outsourcing sales tax compliance, such as redirecting resources and cost-effectiveness.

2. Expertise and Specialized Knowledge:

    • Highlights the importance of outsourcing for accessing professionals with specialized knowledge in tax law and compliance, reducing compliance risks.

3. Reduced Risk of Non-Compliance:

    • Emphasizes the role of outsourcing in maintaining strict compliance with tax regulations and avoiding penalties.

4. Scalability and Flexibility:

    • Explains how outsourcing can adapt to fluctuations in business growth and sales volume, ensuring compliance efforts align with changing demands.

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2024 Standard Mileage Rates Announced By The IRS

Mileage rates for travel are now set for 2024. The standard business mileage rate increases by 1.5 cents to 67 cents per mile. The medical and moving mileage rates are now 21 cents per mile. Charitable mileage rates remain unchanged at 14 cents per mile.

2024 Standard Mileage Rates

Mileage                   Rate/Mile

Business Travel           .67 Cents

Medical Moving         .21 Cents

Charitable Work         .14 Cents

Here are the 2023 mileage rates for your reference.

2023 Standard Mileage Rates

Mileage                   Rate/Mile

Business Travel           .65.5 Cents

Medical Moving         .22   Cents

Charitable Work         .14  Cents

To note

  • These rates apply to gas, electric, hybrid-electric and diesel-powered vehicles.
  • You cannot claim mileage as an itemized deduction as an employee that is not reimbursed for travel expense.
  • Mileage deduction for moving expense is not allowed unless you are an active member of the Armed Forces and are ordered to move to a new permanent duty station.

Remember to properly document your mileage to receive full credit for your miles driven.

From Newsletter of Gary Carter, GW Carter CPA
IRS Reminds Personal Expenses For General Health And Wellness Are Not Considered Medical Expenses Under The Tax Law

WASHINGTON — Amid concerns about people being misled, the Internal Revenue Service today reminded taxpayers and heath spending plan administrators that personal expenses for general health and wellness are not considered medical expenses under the tax law.

This means personal expenses are not deductible or reimbursable under health flexible spending arrangements, health savings accounts, health reimbursement arrangements or medical savings accounts (FSAs, HSAs, HRAs and MSAs PDF).

This reminder is important because some companies are misrepresenting the circumstances under which food and wellness expenses can be paid or reimbursed under FSAs and other health spending plans.

“Legitimate medical expenses have an important place in the tax law that allows for reimbursements,” said IRS Commissioner Danny Werfel. “But taxpayers should be careful to follow the rules amid some aggressive marketing that suggests personal expenditures on things like food for weight loss qualify for reimbursement when they don’t qualify as medical expenses.”

Some companies mistakenly claim that notes from doctors based merely on self-reported health information can convert non-medical food, wellness and exercise expenses into medical expenses, but this documentation actually doesn’t. Such a note would not establish that an otherwise personal expense satisfies the requirement that it be related to a targeted diagnosis-specific activity or treatment; these types of personal expenses do not qualify as medical expenses.

For example: A diabetic, in his attempts to control his blood sugar, decides to eat foods that are lower in carbohydrates. He sees an advertisement from a company stating that he can use pre-tax dollars from his FSA to purchase healthy food if he contacts that company. He contacts the company, who tells him that for a fee, the company will provide him with a ‘doctor’s note’ that he can submit to his FSA to be reimbursed for the cost of food purchased in his attempt to eat healthier. However, when he submits the expense with the ‘doctor’s note’, the claim is denied because food is not a medical expense and plan administrators are wary of claims that could invalidate their plans.

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