June 2, 2021
Big tax bills to hit even modest inheritances if step-up in basis narrows - Lynnley Browning, Accounting Today:
Nearly 1.2 million households have an income between $500,000 and $1 million, according to the most recent IRS data. More than 503,000 have income between $1 million and $5 million. In terms of net worth, not income, at least 20 million U.S. adults now have a net worth of over $1 million, according to Credit Suisse’s Global Wealth Report 2020. That’s more than 8% of the U.S. adult population. In 2019, families in the top 10% of U.S. households by wealth had a median net worth of nearly $1.6 million, Federal Reserve data show.
The issue is that houses have exploded in value since they were bought decades ago and stock portfolios, like real estate, will likely grow even larger before being given to heirs, putting them past the new tax limits, if they aren’t already there now.
Increasing the Capital Gains Rate: Tax Planning in a Time of Flux - Marie Sapirie, Tax Notes Opinions. "Business owners who may not typically end up above the income threshold each year could face an unpalatably large tax bill when they decide to sell their business, or upon death. Thomas J. Nichols of Meissner Tierney Fisher & Nichols SC said gain realization could be draconian for closely held businesses. For example, for some of those businesses, the only point at which the owner-operator would reach the proposed $1 million threshold would be when they sell the business they’ve spent years building."
Senate Ruling May Complicate Democrats’ Infrastructure Push - Erik Wasson, Bloomberg. "Parliamentarian Elizabeth MacDonough said that to revise a budget resolution, such as the fiscal 2021 resolution used to pass the Covid 19 relief bill in March, the measure must go through committee and have floor amendment votes. That would make the process of revising a budget as time consuming as doing a fresh budget. MacDonough also ruled that there must be a legitimate reason -- such as a new economic downturn -- for revising a budget, the person said."
Biden Administration details tax proposal boosting low- and middle-income homeownership - Jay Heflin, Eide Bailly:
The credit has not become law. In fact, Congress has yet to even debate the credit as part of the American Jobs Plan. That debate is expected to begin soon in Congress, but passage of such legislation could be months away.
As for the federal tax credit proposal, it is dubbed the “Neighborhood Homes Tax Credit,” and it seeks to attract private investment to develop and rehabilitate homes for low- and moderate-income individuals and families.
Montana Adopts Individual and Corporate Income Tax Reform - Maxwell James and Jared Walczak, Tax Policy Blog:
Senate Bill 159 reduces the top marginal income tax rate from 6.9 to 6.75 percent while keeping the existing seven-bracket system otherwise unchanged. Although the rate reduction is limited to the top marginal rate, it benefits most taxpayers, as the top bracket starts at $18,700 for both individual and joint filers, while median household income in the state is $57,153. The rate reduction goes into effect in 2022, while the bill’s provisions expire after 2024, a sunset provision which was contingent on enactment of S.B. 399.
Senate Bill 399 makes sweeping structural changes to the state’s individual income tax brackets and tax credits offered, and generally brings the state’s tax code into greater conformity with the Internal Revenue Code.
The biggest change the bill makes to the individual income tax system is scrapping the seven-bracket system and implementing a streamlined two-bracket system with rates of 4.7 and 6.5 percent, with bracket widths that are doubled for joint filers, avoiding the marriage penalty that currently exists in the state’s income tax.
Private Sector Recruiting Boosts IRS Tech Ranks, Watchdog Says - William Hoffman, Tax Notes ($). "The IRS filled seven senior management and executive IT vacancies during the first full year of its renewed authority to pay premiums for private sector expertise."
Chicago Mayor Wants Food Delivery Firms to Remit Restaurant Tax - Evan Fallor, Tax Notes. 'Under the legislation, delivery companies such as Grubhub, Seamless, and DoorDash would be required to remit the tax to the city Department of Finance rather than the restaurants they deliver on behalf of.'"
TIGTA Releases Report on Improper Payment Rate For Refundable Credits - Leslie Book, Procedurally Taxing. "The other side of the coin is that Congress seems intent on using the tax system to deliver all sorts of benefits, and as the IRS itself more directly acknowledges its role as a benefit administrator, the reasons for exceptional treatment may not be as compelling."
5 tax moves to make this June - Kay Bell, Don't Mess With Taxes. "2. Pay your estimated taxes: In addition to being regular Tax Day for those given a disaster-related delay, June 15 also the due date for estimated tax payments."
Lesson From The Tax Court: The Structure Of Substantiation Requirements - Bryan Camp, TaxProf Blog. "The Tax Court keeps telling us that taxpayers bear the burden to prove their entitlement to deductions. Taxpayers repeatedly fail to learn the lesson."
Purchase of U.S. Residential Property from a Foreign Entity Causes Withholding Tax Headaches for Buyers - Parker Tax Publishing. "Under Code Sec. 1472 and Code Sec. 1445(a), respectively, the FIRPTA and the FDAP rules require the transferee - or buyer - in taxable transactions with a foreign entity to deduct, withhold, and pay a prescribed amount of tax to the IRS."
Related: Eide Bailly International Tax.
Transfers of Stock or Securities to Investment Partnerships: A Dangerous Exception Lurking for the Unwary - John B. Reyna, Freeman Law. "Because of the range of assets included as stocks and securities under I.R.C. § 721(b), it is quite simple for a contributing partner to unintentionally trigger gain upon making a contribution to a partnership."
What’s the “Beef” With Conservation Easements? - Roger McEowen, Agricultural Law and Taxation Blog. "Another requirement of securing a charitable deduction for a donated conservation easement is that the charity must be absolutely entitled to receive a portion of any proceeds received on account of condemnation or casualty or any other event that terminates the easement."
IRS Crypto Tax Risks Expand With New Reporting - Robert Wood, Forbes ($). " You might think you won’t be caught, but the risks are growing. The best way to avoid penalties or worse is to disclose and report as accurately as you can."
Tax Implications of California's Vax for the Win Program - Annette Nellen, 21st Century Taxation. "These prizes are unexpected accessions to wealth and should be taxed. That is, no exclusion should be enacted in California and certainly not at the federal level (no need for non-Californians to subsidize these prizes)."
Countries Should Be Cautious about Relying on Inheritance Taxes for Revenue - Christina Enache, Tax Policy Blog:
However, during the 20th century, for the countries where data was available, wealth inequality, measured as the share of net wealth held by the top 1 percent wealthiest households, declined sharply. It was only in the past four decades that the share of net wealth held by the top 1 percent wealthiest households increased slightly on average, from roughly 20 percent to 25 percent. However, this slight increase occurred during a period when household wealth grew substantially. Between 1995 and 2019, per capita wealth tripled in France and more than doubled in the United Kingdom and Canada.
Checking only for inequality obviates the fact that all households are better off today than they were in past decades.
Poverty is worse than inequality.
50 Years of Preparing 1040s - My First 1040 - Robert D. Flach, The Wandering tax Pro. "Most people remember their first love. I remember with fondness the first Form 1040 I prepared – which for me is really the same thing."
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.