November 4, 2020
Maybe tomorrow? The biggest prize in yesterday's voting is not yet awarded, as vote counting continues in swing states for the presidential election.
The Senate results remain uncertain, though the New York Times says this morning that Republicans appear poised to hold on to their Senate majority. If that holds, a tax policy stalemate is likely if the Democrats take the White House.
State tax ballot issues are more conclusive. The Tax Foundation provides a rundown. Some key results:
Arizona voted to create a new top income tax bracket with an 8% rate. The 8% rate starts at $250,000 for single filers and $500,000 for joint returns. The former top rate was 4.5%.
California appears to have rejected a proposal to undo Proposition 13 protections for commercial property.
Colorado has approved a reduction in the top income tax rate from 4.63% to 4.55% for individual and corporate taxes, effective for 2020.
Illinois rejected a constitutional amendment to allow a graduated income tax, preserving the current flat rate system. Approval would have raised Illinois' top corporate rate from 7% to 10.49%, and the top individual rate from 4.95% to 9.49%.
Marijuana legalization measures with associated new taxes were approved in Arizona, Montana, New Jersey and South Dakota.
While it is too early to know exactly how the election came out, it's not too early to register for the Eide Bailly Post-Election Legislative Update webinar set for November 11, presented by our Director of Legislative Affairs, Mel Schwarz.
A Biden Win Could Mean a Tax Rewrite for Private Equity - Chris Cumming, Wall Street Journal. "Mr. Biden’s tax plan would increase the tax rate on capital gains to 39.6% from the current 20% for people earning more than $1 million a year. For high-earning fund managers, the change would effectively eliminate the treatment of carried interest under a longstanding rule that taxes fund managers’ share of investment gains at a lower rate than ordinary income."
Biden’s Call for More Tax Credits Further Complicates the Tax Code - Taylor LaJoie, Tax Policy Blog. "These proposals increase spending through the tax code and amplify the redundancy, complexity, and error rates within the tax code, overlooking alternatives that would improve the tax code and help individuals increase their incomes."
Retirement Savers Credit And Prior Retirement Withdrawals - Jason Dinesen. "The retirement savers credit is a tax credit available to taxpayers who put money into a retirement account and whose income is below the threshold for qualifying for the credit... What I want to talk about today is how prior-year withdrawals from a retirement account count against you when calculating the credit."
Tips For Deducting Cell Phone Use by Real Estate Agents & Small Business Owners - Brett Hersh, Overnight Accountant. "The IRS (and you) know that it is rare for anyone owning a single cell phone, particularly a modern smartphone, to use it 100% for business."
IRS lender transcript troubles highlight importance of keeping good tax records - Kay Bell, Don't Mess With Taxes. "Yes, your bank still will confirm that the tax and earning material you give them is correct. But by having your tax filings available, you at least give the bank a head start in getting the loan process going."
Who Gets the Tax Benefit For Those Checkout Donations? - Renu Zaretsky, TaxVox. "Even with a receipt, more than nine out of 10 taxpayers won’t deduct this—or any other-- charitable donation from their federal taxable income. That’s because they do not itemize their deductions."
IRS Fraud Penalties, TEFRA, and Conservation Easements - Jason Freeman. "When it comes to partnerships, fraud is generally determined by conduct that occurred at the partnership level."
Circuit Court Weighs in on Meaning of Willfulness, Maximum Penalty and SOL Issues in Important FBAR Case - Leslie Book, Procedurally Taxing. "In US v Horowitz the Fourth Circuit issued a published opinion addressing a number of issues relating to the willful penalty for failing to file an annual Report of Foreign Bank and Financial Accounts, commonly referred to as an FBAR."
IRS News Release Describes Collection Options for Taxpayers Impacted by COVID-19 - Ed Zollars, Current Federal Tax Developments.
2021 State Business Tax Climate Index: Bring Me the Usual Suspects! - Russ Fox, Taxable Talk. "Some states, like Utah and Indiana, have most taxes but they administer them neutrally, simply, and with relatively low rates. Contrast that with California, which has an awful income tax system, high rates, and ridiculous regulations."
Packing it in. A Justice Department press release provides an inadvertent lesson how to make sure banks and the IRS take a closer look at your bank deposits.
From the press release (names removed):
Two Woonsocket businessman who operated a drywall subcontracting business that performed jobs for large construction companies and projects, and that utilized several business addresses in Rhode Island and Massachusetts, are named in a twenty-eight count federal indictment. The indictment alleges that the two individuals executed schemes to avoid paying federal employment taxes by paying employees in cash, often times delivered to worksites in backpacks, and failing to submit the actual amount of employment tax payments due the IRS.
It would be interesting if their kids grabbed the wrong backpack on the way to school. This passage from the press release may give some insights as to why the IRS came looking:
It is alleged that Defendants conducted more than 120 cash deposits of between $9,000 and $10,000, often times on consecutive days. Many of the deposits were in the exact amount of $9,900. It is alleged that deposits were frequently structured in amounts of less than $10,000 to avoid federal reporting requirements by financial institutions.
In addition to reporting cash transactions over $10,000, banks are required to watch for "structuring" deposits - deposits apparently designed to avoid the $10,000 reporting floor. While the press release doesn't say so, I suspect a bank reported repeated $9,900 deposits.
If the allegations were true, the plan was likely to fail from the start. With their backpack payroll, pretty much every employee was in on the plot. Every disgruntled employee was in a position to expose things. Bring the banks in, and you might as well phone the federal prison for a reservation.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.