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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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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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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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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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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An article posted on the Wake County Government site in Raleigh, North Carolina promulgated in January 2024 updates residents pay in property taxes.