Citizens Against Government Waste: The Prime Cut Series (#4)

2023 PIG BOOK SUMMARY

Eliminate Federal Subsidies for Amtrak
1-Year Savings: $2.5 billion
5-Year Savings: $12.3 billion

Since Amtrak was created in 1971, it has cost taxpayers more than $40 billion. The railroad was supposed to earn a profit but has continuously failed to do so. In some cases, it is less expensive to use other forms of transportation. A 2009 study found that taxpayers paid $32 in subsidies per Amtrak passenger. By booking a month or more in advance, it is possible to buy a round-trip plane ticket from New Orleans to Los Angeles for less than the $437.82 that Amtrak loses per passenger on a one-way trip between those same locations.

A January 2018 Ernst and Young audit found that “the Company has a history of operating losses and is dependent upon substantial Federal Government subsidies to sustain its operations and maintain its underlying infrastructure.” An August 2012 New York Times article reported that Amtrak had lost $834 million on food service alone since 2002, largely due to employee theft.

Unfortunately, the waste and abuse does not end with food sales. The Amtrak Office of Inspector General (IG) has issued several reports detailing inadequate supervision, including a September 2012 report that investigated two employees who received fraudulent pay for hours they never worked. One employee was paid $5,600 in regular and overtime pay “when he was actually off Amtrak property officiating at high school sporting events.” Another employee was observed for 84 days, and it was discovered that “$16,500 of the $27,000, or 61 percent of the overtime wages he was paid
were fraudulent.” The IG concluded that, since it is likely that this employee had a history of fraudulent overtime pay, the amount of fraudulent pay “would be approximately $143,300 of the $234,928 that he was paid.”

Amtrak has also failed to control costs on key expansion projects. The overhaul of Union Station in Washington, D.C., “faces significant risks of coming in over budget and behind schedule,” according to an August 1, 2018 IG report. Projects in Virginia were cited for poor staff communications and project delays.

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How Is Software As A Service (SaaS) Treated Under State Tax Laws?

How Is Software As A Service (SaaS) Treated Under State Tax Laws?

A very important and often misunderstood area in the sales tax arena is the taxability of cloud-computing, cloud-based services, etc., collectively often referred to as Software-as-a-Service (or SaaS). The moniker alone is enough to start the state tax conversation down an interesting path.

The Basics

When we work with clients to determine how something should be taxed, we start with a few basic questions and then work from there.

Has nexus has been created?
This includes looking at both the physical presence as well as an economic presence. Following the U.S. Supreme Court’s June 2018 ruling in South Dakota v. Wayfair, many states enacted economic nexus statutes which require sellers to collect and remit sales tax in those states based on sales or transactional thresholds. In this process we also look at when nexus was created based on physical presence or economic nexus.

Is the product taxable?
Once nexus is established, the sale of tangible personal property by a retailer to a customer in a given state is generally taxable. We start there, and then review the transaction to see if there are any exemptions that would cause the sale of the property to not be taxable.

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Biden Administration Wants To Increase Your Taxes For 2025

Bidens Proposed Tax Increases

If you are wondering if President Biden is proposing tax increases, look no further than the General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals.

According to PWC “President Joe Biden on March 11 sent Congress a fiscal year (FY) 2025 budget that proposes to increase taxes by nearly $5 trillion for corporations and for individuals with incomes above $400,000.  Many of the president’s tax proposals — including a proposal to increase the corporate tax rate to 28% and impose a 25% minimum tax on certain high-income individuals – were included in President Biden’s previous budgets.  New tax proposals in the FY 2025 budget include measures to increase the recently enacted corporate alternative minimum tax rate from 15% to 21% and to deny business deductions for employee compensation above $1 million.”

Look no further than the Table Of Contents of the Biden Administration Revenue Proposals to see a number of tax increase proposals that include:

  • Raise the Corporate Income Tax Rate To 28%
  • Increase The Corporate Alternative Minimum Tax Rate To 21%
  • Increase The Excise Tax Rate On Repurchase Of Corporate Stock
  • Tax Corporate Distributions As Dividends
  • Limit Tax Avoidance Through Inappropriate Leveraging Of Parties To Divisive Reorganizations
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Foreign Self-Employment Income: A US Expat’s Guide

Foreign Self-Employment Income: A US Expat’s Guide

Navigating the intricate world of expat taxes presents unique challenges and reporting obligations for self-employed U.S. citizens living abroad. Understanding the nuances of foreign income, tax treaties, and self-employment taxes is crucial for maintaining compliance with the IRS while optimizing financial health.

WHAT CONSTITUTES FOREIGN SELF-EMPLOYMENT INCOME?

Foreign self-employment income refers to the income earned by self-employed individuals who work outside of the United States. The IRS defines self-employment income as any income earned through a trade or business when you are a sole proprietor or a member of a partnership, and it includes income earned from side gigs or part-time businesses. Self-employment income is subject to self-employment taxes, which include Social Security and Medicare taxes, and self-employed individuals are required to pay quarterly estimated taxes in addition to filing an annual return.

WHAT IS THE THRESHOLD FOR REPORTING FOREIGN SELF-EMPLOYMENT INCOME?

If your net earnings from self-employment exceed $400, you are required to report this income on a US tax return. This income threshold applies to all self-employed individuals, including those working abroad, and encompasses your worldwide income.

WHAT IS THE U.S. SELF-EMPLOYMENT TAX RATE?

For the tax year 2023, US expats who are self-employed need to be aware of the self-employment tax rate that applies to their net earnings. The Internal Revenue Service (IRS) outlines that the total self-employment tax rate is composed of two parts: a 12.4% contribution towards Social Security and an additional 2.9% that goes towards Medicare. Collectively, this brings the self-employment tax rate to approximately 15.3% of your net profit.

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What Is The Benefit Of The R&D Tax Credit?

What Is The Benefit Of The R&D Tax Credit?
What is the Research And Development Tax Credit?

The R&D tax credit, also known as the Research and Development tax credit, was created as a way to incentivize U.S. based research and development activity. The Protecting Americans from Tax Hikes (PATH) Act in 2015 made this a permanent tax credit and extended the benefits to startup companies. The credit enables businesses of all sizes to reduce their federal income tax for qualified research expenses. These expenses must be for qualified research activities.

What Is The Benefit Of R&D Tax Credit?

Claiming the R&D tax credit can potentially result in significant cost savings. The benefits include:

  • Increasing Cash Flow
  • Federal and State Dollar-for-Dollar Income Tax Reduction
  • Claim Credits for Open Tax Years Going Back 3-4 Years
  • Reducing Your Tax Rate

    How To Claim The R&D Tax Credit

    A taxpayer can claim an R&D tax credit, on their timely filed tax return including extensions for a given year and a taxpayer can amend prior returns to claim the credit. For amended tax returns, this can typically be claimed for the previous 3 years.

    The credit is claimed by filing IRS Form 6765, Credit for Increasing Research Activities (for the year in which the qualified expenses were paid or incurred).
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Indiana Economic Nexus Threshold Amended

Indiana Economic Nexus Threshold Amended

On March 13, 2024, Indiana Governor, Eric Holcomb, signed an emergency law amending Sales and Use Tax provisions in the state. The most notable of these provisions was to amend the economic threshold for sales tax nexus by removing the number of annual sales transactions in the state as one of the two triggers that require retail merchants to collect and remit state sales tax.

Background Of Economic Nexus

In a past blog, we discuss the origins of economic nexus and where we were in 2023 – 5 years after the Wayfair case was decided:

https://milesconsultinggroup.com/blog/2023/06/13/on-the-5th-anniversary-of-the-wayfair-decision-the-impact-of-economic-nexus-on-small-and-mid-sized-businesses/

Have questions about economic nexus in Indiana or another state? Click here to schedule a free consultation:

In most states, the threshold began as either a sales limit or a transaction limit. For example, when South Dakota’s economic nexus law was enacted, it established a threshold of 200 transactions or $100,000, which many states later modeled  as they passed their own economic nexus legislations.

Indiana’s original economic nexus law came into effect on October 1, 2018, and before this law change, the threshold was the lesser of $100K of sales OR 200 transactions.

Transaction Threshold Often An Unnecessary Burden

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Avoiding Costly Mistakes: Four Essential Tax Concepts For The Non-Tax Business Attorney Or CPA (Webinar May 16th 2024)

Avoiding Costly Mistakes: Four Essential Tax Concepts For The Non-Tax Business Attorney Or CPA
Even smaller transactions might have big traps and significant tax implications – leading to unexpected tax liabilities for your clients and potential malpractice claims for you.
This webinar covers four essential flow-through tax concepts you need to know to avoid common ‘foot-faults’ or worse and to continue to be the “go to person” for your clients.During this one-hour webinar, the Tax Forum team of Chuck Levun, Michael Cohen and Scott Miller will provide a top-level look at …

  • Converting an existing S corporation to an LLC on a tax-free basis to obtain “charging order” protection
  • Simple business structuring to circumvent the $10k deduction limitation for the portion of state and local income taxes attributable to business income
  • How not to cause your client to be one of the estimated 500k+ LLCs that incorrectly thought it was going to be taxed as an S corporation but, because of certain language contained in its operating agreement, is not an S corporation
  • Personal goodwill and the C corporation business sale – identifying situations in which double tax can be avoided

Any one of these could make the difference between you being a hero or creating a significant problem for your clients.

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How Inflation Drives LIFO

How Inflation Drives LIFO

Understanding LIFO as an effective mitigation strategy for inflation is an economic challenge that significantly impacts a wide range of businesses, from manufacturers and distributors to retailers. Amidst the challenge of rising costs for raw materials and finished goods, the Last-In-First-Out (LIFO) inventory method emerges as a potent strategy to navigate this tricky economic landscape.

How LIFO Contributes To Tax Savings

At its core, LIFO operates by matching the costs of goods sold with the most recent, and typically higher, costs, while the oldest costs remain tied to unsold inventory. This process results in a higher cost of goods sold, which in turn translates into lower taxable income, thereby reducing tax liability. This mechanism helps businesses effectively combat the adverse effects of inflation.

The Criteria For Adopting LIFO

Adoption of the LIFO method isn’t universal. It’s particularly beneficial for businesses experiencing inflation and maintaining an inventory valued at over $2M. The potential for significant tax savings, achieved annually, transforms LIFO into a sustainable method to manage the potential repercussions of inflation.

The Power Of Reinvestment With LIFO

The use of the LIFO method not only provides tax relief but also frees up valuable cash flow for businesses. By lowering tax liabilities, these extra funds can be funneled back into the business, leading to reinvestment opportunities. These might include investing in technological upgrades, expanding the workforce, or scaling operations, thereby further enhancing business growth.

Adopting LIFO

The decision to adopt LIFO requires careful and strategic consideration of the client’s inventory flow and overall financial position. It’s not a one-size-fits-all solution. However, if a client qualifies, LIFO can emerge as a powerful tool to help combat the negative effects of inflation, strengthening their financial resilience.

LIFO represents an effective strategy that can help businesses counteract the impact of inflation, lower tax liabilities, and create opportunities for reinvestment. At Source Advisors, we stand ready to provide expert guidance on navigating this complex yet highly beneficial financial planning tool.

Have a question about LIFO? Contact Us Today

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Crapo On President’s Budget: “Higher Taxes For The Majority To Support Government Subsidies For The Few”

Crapo Blasts President’s Budget: “Higher Taxes For The Majority To Support Government Subsidies For The Few”
At hearing with Treasury Secretary Yellen, Crapo highlights contrast between pro-growth tax policy and proposals that would stifle economic growth

Washington, D.C.–At a U.S. Senate Finance Committee hearing on President Biden’s Fiscal Year 2025 budget, Ranking Member Mike Crapo (R-Idaho) highlighted the nearly $5 trillion in new and increased taxes included in the President’s budget proposal—tax proposals that would slow the economy and be felt by virtually all Americans.  Ranking Member Crapo highlighted the contrast between the President’s tax proposals versus Republicans’ Tax Cuts and Jobs Act (TCJA), which led to one of the strongest economies in generations.  Senator Crapo secured commitments from U.S. Department of the Treasury Secretary Janet Yellen to support extending Republicans’ pro-growth tax proposals.

Click HERE to watch Senator Crapo’s opening statement.

Click HERE to watch Senator Crapo Question Secretary Yellen.

On whether the President would support extending the individual tax provisions in the Tax Cuts and Jobs Acts:

Crapo: According to the White House, under President Biden’s 2025 budget “no one earning less than $400,000 per year will pay a penny in new taxes.” . . . I agree it is a bad idea to raise taxes on Americans suffering from record inflation at this point.  Interestingly, the President’s budget is essentially silent on extending the individual tax provisions of the Tax Cuts and Jobs Act, many of which expire next year.  A simple yes or no question: Are you aware that the Tax Cuts and Jobs Act, which Republicans passed in 2017, reduced taxes for Americans of all income groups, including those earning less than $400,000 per year?

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The Importance Of Maintaining Business License Compliance

The Importance Of Maintaining Business License Compliance

As a business owner, it is essential to remain compliant with state and local laws to ensure smooth operations. One of the most important requirements is obtaining your business license and permits and then registering for sales and use tax in each state, locale, or jurisdiction where you have met nexus. Many business owners tend to forget, however, that reviewing and updating these credentials regularly is just as important as obtaining them.

Conducting an annual business license and registration review will ensure compliance with the laws of each state where you conduct business. It can help you avoid costly penalties and fines and will identify areas where your business may be at risk of non-compliance.

An annual review will help you identify any changes or updates that should be made to your license(s) and permits(s) and will ensure that you are aware of any new requirements that may have been added since your last review. This is particularly important if you have expanded your business operations to include new products or services, as you may need to obtain additional licenses or permits to ensure that you are operating within the law.

At Thompson Tax, we understand that maintaining these requirements can be overwhelming, and we are here to help. Contact us today to learn more.

Have a question? Contact Dan Thompson, Thompson Tax Team.

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Taxes And The Olympics

Taxes And The Olympics

On March 1, the Commission on the State of U.S. Olympics & Paralympics issued a report: Passing the Torch – Modernizing Olympic, Paralympic, & Grassroots Sports in America. Per the announcement, this commission was directed by Congress to study recent reforms of the U.S. Olympic and Paralympic Committee to improve the organization’s “ability to fulfill its mission.”

The word “tax” appears 39 times in the report. Tax law changes suggested:

Page 17 – allow taxpayers to deduct the costs for their children to participate in youth sports.

Page 18 – allow taxpayers serving as volunteer coaches for youth sports to deduct out-of-pocket expenses.

Page 18 – to help support youth and grassroots sports, consider new revenue sources such as from an excise tax on legal sports betting and a voluntary checkbox on income tax forms for donations

The report notes the 2016 tax law change to add an exclusion from income for the value of the metal in gold and silver prize medals and bonuses winners receive (unless the taxpayer has AGI determined with the value of Olympic winnings above $1 million – IRC §74(d))

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California Wants To Reveal Taxpayers Income To Utility Company To Raise Their Tax Rates

California Wants To Reveal Your Income To Your Utility Company To Raise Your Rates
California wants to impose a new “charge” on your utility bill that you have to pay regardless of whether you use any energy that month and the rate will now be based on your income. Reform California opposes the charge and calls it an illegal tax and a violation of privacy. If you make over $180,000 annually you must pay an additional utility fee of $128 per month or $1536 per year more on your utility fees. While those making under $28,000 annually will pay an extra utility fee of $24 per month or $288 annually.

Californians are still suffering under some of the highest utility rates in the country, and many can barely afford to pay their bills.

Now California Democrat politicians want to impose a new “flat fee” on all utility bills based on each household’s income for the year. That means many residents will pay a charge of $128 per month – while low income and other “favored” groups pay just $24 for the SAME SERVICE.

Opponents say California Democrats are just playing class warfare and the “fee” is really an illegal tax on most Californians to subsidize the bills of lower-income residents.

The fixed rates are required under Assembly Bill 205 (AB 205), which was signed by Governor Gavin Newsom (D) in 2022. The bill states that “the commission may authorize fixed charges [for utilities] … The fixed charge shall be established on an income-graduated basis.”

The specific rates in this “flat fee” scheme is now being voted on by the California Public Utilities Commission (CPUC). The proposal would charge customers of Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric fixed rates based on income. For San Diego Gas & Electric customers, the rates would be as follows:

  • Income of under $28,000: $24/month
  • Income of $28,000-69,000: $34/month
  • Income of $69,000-180,000: $73/month
  • Income of over $180,000: $128/month

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