Pritzker Seeks $898 Million In Tax Hikes For Illinoisans

According to the information posted at the Illinois Policy Organization:

Illinois Gov. J.B. Pritzker will set another state record if his $52.7 billion budget for 2025 is passed. He described it as “tight” as well as “focused and disciplined.”

But it relies on $898 million in new taxes. It is nearly $13 billion more than the state budget when he took office.

So, yes, it’s focused and disciplined – as much as sailors on leave.

Here’s a look at the details, winners, losers and those who will be left wounded.

Revenue

Illinoisans should be most cautious of the call for massive tax hikes, $898 million to be exact, on corporations, retailers, sportsbooks and even individual taxpayers. While the governor specifically singled out his proposals to create a state-level child tax credit and eliminate the state’s grocery tax – revenue that goes entirely to local governments – in his address Feb. 21, he failed to mention that in total his series of proposals would substantially raise taxes for Illinoisans.

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COLORADO STATE PROPERTY TAXES

In October 2023, Colorado Public radio published an interesting article about property taxes titled “Property Taxes Explained: Will that 40 percent value jump really mean 40 percent higher taxes? The CPR article states:

“Coloradans received some truly eye-opening letters from their county governments this year.

In parts of Western Colorado, the taxable value of the average home is 55 percent higher than just a couple years ago. It was an 80 percent average increase for Pitkin County. On the Front Range, Douglas County homes have gained 40 percent in value.

Those were the outliers, but not by much. The average Colorado home gained 37 percent in value over just two years, according to preliminary data analyzed by CPR News.

That story is well-known by now, as countless headlines have warned that sharp increases in value will lead to much larger tax bills next year. It’s also turned into a major political fight through the ballot measure known as Prop. HH.

Still, there’s a bigger question that’s gotten lost in the shuffle: How much are tax bills actually going to increase, and where would all that money go?

The short answer is — it all depends on where you live. But here’s what we’ve learned about the bigger picture:

Where are property values rising the fastest?"

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American Opportunity Tax Credit Issues

Over the years, I have heard individuals and tax professionals raise various questions on the operation of the American Opportunity Tax Credit (AOTC at IRC 25A). This is the credit that for the past many years provides up to a $2,500 credit for each of the first four years of higher education at a college or university.  It started in the early 1990s as the Hope Scholarship credit for a lower amount and only the first two years of college.

There are numerous other tax breaks for higher education including an exclusion for scholarships, a limited above-the-line deduction for student loan interest, the Lifetime Learning Credit, an exclusion for interest on education savings bonds, 529 accounts, and more.

Some of the issues I have heard for the AOTC include:

  • Do years at a community college count as part of the four years? I believe they do, but what if the student isn’t, at least at first, pursuing a degree?
  • What are all of the expenses that qualify?
  • What if the 1098-T received (and required to claim the credit) is incorrect in terms of the year or amount?
  • Why does it only cover college or university programs rather than also trade schools and similar?
I’m working on a paper of these and a few other administrative and legislative issues about the AOTC. If you have questions or issues you’ve encountered or wondered about, I would greatly appreciate you posting them in a comment here.  Thank you!
Written by Annette Nellen, Professor San Jose State University
Four Mistakes You Might Be Making on Your R&D Tax Credit Claim

Are you making the most of your R&D tax credit claim? Here are four common mistakes that businesses often make when it comes to claiming their R&D tax credits.

1. Documentation Deficit: Leaving Money On The Table

Robust documentation is the backbone of a successful claim. Keep detailed records of your project objectives, methodologies, challenges encountered, and results achieved. Think meeting notes, technical reports, prototypes, and even emails discussing the innovative aspects. Without solid proof, your claim risks crumbling under scrutiny.

2. Casting A Wide Net: Not All Costs Are Created Equal

While your entire R&D project might seem worthy of a reward, the R&D tax credit isn’t a blanket solution. It specifically targets the innovative aspects, not routine business activities. Common mistakes include claiming marketing costs, routine tasks like quality control, or expenses incurred outside the eligible claim period. Scrutinize your project expenses and isolate the specific portions related to genuine R&D activities. Only those qualify for the credit.

3. Underestimating The “R” In R&D

Not all projects with a science twist automatically qualify for R&D tax credits. Remember, the “R” stands for research, not routine development. Your project should involve overcoming technological or scientific uncertainties, leading to advancements in your field. Simply improving an existing product or process might not be enough. Be prepared to demonstrate the innovative elements and technical challenges tackled within your project.

4. Going Solo When the Stakes Are High

Navigating the R&D tax credit landscape can be complex, especially for intricate projects or businesses unfamiliar with the process. While venturing solo might seem tempting, seeking professional advice can be invaluable. Experienced R&D tax advisors can maximize your claim by identifying all eligible expenses, ensuring compliance, and minimizing the risk of errors or rejections. Their expertise can translate into significant financial gains and peace of mind.

R&D Tax Credits With Source Advisors

Claiming R&D tax credits can be a game-changer for your business, fueling further innovation and boosting your bottom line. By avoiding these common pitfalls and seeking expert guidance when needed, you can ensure your claim journey is smooth sailing.

At Source Advisors, we can help assess your company’s federal R&D tax credit opportunity and determine any state R&D tax credit availability.  Our team of experienced CPAs, attorneys, engineers, and technology experts helps companies save money and create cash flow with R&D tax credits that can then help drive overall growth.

Want To Speak With Source Advisors, Contact Eric Larson For Introductions.

The Biden Tax Hike Will Likely Exceed $7 Trillion

President Biden’s Budget Shows He Will Let Middle Class Tax Cuts Expire

Hidden inside President Biden’s Fiscal Year (FY) 2025 Budget is the revelation that he will increase taxes by a whopping $7 trillion, thanks to a range of tax increases and the expiration of Republicans’ 2017 tax reform. Ways and Means Chairman Jason Smith (MO-08) outlined a list of the biggest tax increases, saying:

“President Biden’s $7 trillion tax increase on small businesses and families means fewer jobs, higher prices, and handing our competitive advantage to China. Far from going after the wealthy, these are tax hikes that hit workers, mom-and-pop business owners, seniors nearing retirement, and family farms and ranches. And with the IRS getting another $104 billion and an expanded ability to approve penalties, Democrats will be on the fast track to collect your life savings.”

The Details:

President Biden Quietly Pledges to Let Trump Tax Cuts Expire

  • Even as the President claims he will not allow the middle-class tax cuts in the 2017 tax reform to expire, his budget fails to show any plan to stop the increases and spends as though they don’t exist anymore.
  • That’s approximately $2 trillion in new taxes on top of the nearly $5 trillion explicitly included in this budget.

Sending Jobs and Companies Overseas with Higher Business Taxes than China

  • Increasing the corporate tax rate to one of the highest in the world would put America at a disadvantage in attracting investment and jobs.
  • As much as 75 percent of the burden of corporate tax increases falls on American workers and consumers in the form of lower wages and higher prices according to recent economic studies.

Global Tax Surrender Allows Foreign Governments To Take American Tax Dollars

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Refund of Tax Paid on Software Purchases
Refund of Tax Paid on Software Purchases by Companies Located Illinois, Massachusetts, New York, Pennsylvania, Washington or Utah

The multiple points of use (“MPU”) exemption is a provision in sales and use tax laws designed to address situations where software is purchased for use in multiple jurisdictions. The MPU exemption allows for allocation of tax based on the proportionate use in each jurisdiction. This results in a refund of sales tax paid on software purchased.

Why do companies overpay sales & use tax on software purchases?

The purchase of specific software licenses or many cloud-based products, such as SaaS, PaaS, and DaaS, products are subject to sales tax in various (but not all jurisdictions) across the country. Typically, sales and use tax laws require tax to be charged based on the location where the software is billed to as this is assumed to be location of ALL OF ITS use. Many companies, especially post COVID-19 have employees that are located in jurisdictions across the country either working out of satellite offices and / or working from their homes. In these situations, companies are overpaying sales & use tax on software purchases because they are paying tax for users that are located in jurisdictions outside of where the software purchases were billed to.

How does the company qualify?

There are no industry and / or purpose of use qualifications to meet in order qualify for this exemption. The only qualification for the MPU exemption is that the software should be capable of being used in multiple locations or by multiple users. While there may be other exemptions applicable to software, the MPU exemption is primarily for companies that are based out Illinois, Massachusetts, New York, Pennsylvania, Washington or Utah.

What is the opportunity?

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What To Expect After Receiving A Non-filer Compliance Alert Notice And What To Do To Resolve

In the continuing effort to improve tax compliance and ensure fairness, the Internal Revenue Service announced a new effort on Feb. 29, focused on high-income taxpayers who have failed to file federal income tax returns in more than 125,000 instances since 2017.

The new initiative, made possible by Inflation Reduction Act funding, begins with IRS compliance letters going out this week. The mailings include more than 25,000 to those with more than $1 million in income, and over 100,000 to people with incomes between $400,000 and $1 million between tax years 2017 and 2021.

About 20,000 to 40,000 CP59 notices are anticipated to mail each week, beginning with filers in the highest income categories.

What is the CP59?

The recently updated CP59 notice is sent when the IRS has no record that a prior personal tax return(s) has been filed. It provides details on what a taxpayer can do to resolve their non-filing status:

  • File their signed, personal tax return immediately or explain why a return is not required.
  • Complete Form 15103, Form 1040 Return Delinquency, included with the notice to explain:
    • Why they’re filing late.
    • Why they don’t have to file.
    • That they’ve already filed.
  • Detach notice stub and mail it with tax return and completed Form 15103 using the envelope provided. They can fax their information to the fax number in the notice using either a fax machine or an online fax service. Taxpayers should protect themselves when sending digital data by understanding the fax service’s privacy and security policies.
Newly revised CP59 notice

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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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