Tax News & Views Bracket Jump Roundup

IRS announces new income tax brackets for 2024 – Kate Dore, CNBC:

The IRS on Thursday announced higher federal income tax brackets and standard deductions for 2024.

The agency has boosted the income thresholds for each bracket, applying to tax year 2024 for returns filed in 2025. For 2024, the top rate of 37% applies to individuals with taxable income above $609,350 and married couples filing jointly earning $731,200.

The bright side: 

Inflation Causes IRS to Raise Tax Brackets, Standard Deduction by 5.4% - Ashlea Ebeling, Wall Street Journal:

Here’s an upside to persistent inflation: More of your income will be taxed at lower rates next year.

The Internal Revenue Service announced its annual inflation adjustments to federal income-tax brackets for 2024 Thursday, an increase that slightly outpaces the current inflation rate. This means some Americans will pay less in taxes, said Jim Young, an accounting professor at Northern Illinois University.

The adjustments, based on formulas set out in the tax code, are meant to keep inflation from hiking taxes. “It’s kind of like a high tide lifts all boats,” said Chris Oliva, a certified public accountant at UHY Advisors in New York City.

The standard deduction and the thresholds for each tax bracket are up 5.4%, the second largest adjustment in the last three decades after last year’s 7.1% hike. 

The not-so bright side:

The IRS just revealed the 2024 income-tax brackets — what the numbers mean for your tax bill – Andrew Keshner, Market Watch. “The ranges increased by approximately 7% when the IRS announced its inflation adjustments last year for 2023 returns. That was the largest increase in decades, according to Robert McClelland, senior fellow at the Tax Policy Center. The 5.4% increase is the second-largest yearly increase to the brackets, while a 5.3% increase in 1992 was the third-largest increase, McClelland noted.”

The IRS press release is here. 

IRS Reports Overall Success On 2023 Taxpayer Service Goals – Jared Serre, Law360 Tax Authority ($):

The Internal Revenue Service's financial report for 2023, published Thursday, disclosed that the agency met five of its six goals toward improving taxpayer services and information dissemination.

The agency's efforts to timely provide individual filing season tax products to the public far surpassed its target success rate of 83%, finishing with an actual result of 96.4%, according to the report.

The IRS also exceeded expectations in providing correct answers to taxpayers on tax law and account inquiries, the timeliness for making certain business tax products available and in resolving taxpayer assistance requests with automated services, the report said.

The report is here.

I’m guessing IRS customer phone service was goal six:

IRS Needs To Improve Phone Customer Service, TIGTA Says – Jared Serre, Law360 Tax Authority ($):

The Internal Revenue Service must take additional action to improve customer service quality over the telephone, the Treasury Inspector General for Tax Administration said in a report published Thursday. While the IRS met the expectations of the Treasury secretary, TIGTA identified a handful of errors with the agency's process when it conducted test calls, according to the report, dated Nov. 6. Among the concerns it discovered were hold times longer than 30 minutes, the inconsistent providing of mandatory scam alert information and callers not receiving return calls after selecting that option, the report said.

The report is here.

Finance Committee Stuck on Taxing Unrealized Capital Gains – Cady Stanton, Tax Notes ($):

Senate taxwriters rehashed the debate over the viability of taxing the unrealized capital gains of high-income taxpayers, coming up with more questions than answers on the proposal.

At a November 9 Senate Finance Committee hearing, a perennial “mark-to-market” proposal from committee Chair Ron Wyden, D-Ore., elicited lukewarm reactions from Democrats and Republicans alike. The proposal to tax accrued capital gains annually, regardless of whether the asset is sold, aims to address high-income taxpayers who use low-interest loans backed by investments to fund their lifestyles without being taxed — a practice labeled “Buy, Borrow, Die.”

Toward the end of the hearing, Wyden said that legislation on the issue could be coming in the future (maybe by year end). But yesterday’s event was more about messaging than scrutinizing a particular piece of legislation.  

Capitol Hill Recap: Tax Bill Rumors Become News – Jay Heflin, Eide Bailly:

One message:

One of the main tax issues raised during the hearing was taxing unrealized capital gains. Senate Finance Chairman Ron Wyden (D-Ore.) pushed the idea of “mark-to-market” taxation. Under this proposal, assets would be pegged at fair market value annually and then taxed at that value, whether or not a gain has been realized.

“Put simply: mark-to-market would require billionaires to pay tax every year, just like everyone else,” Wyden said.

Another message:

Senate Finance Ranking Member Mike Crapo (R-Idaho) noted that unrealized capital gains are not just for the rich. He stressed that middle-income and lower-income taxpayers also have unrealized capital gains and applying mark-to-market taxation to their assets would likely require them to sell the asset to pay the tax. This could badly affect homeownership.

And yet another message:

Top GOP Senate Tax Writer Argues Against SALT Cap Repeal – Asha Glover, Law360 Tax Authority ($):

Congress should look critically at tax provisions and proposals that benefit the wealthy, including pitches to repeal the state and local deduction cap, and avoid increasing corporate taxes, the Senate Finance Committee's top Republican said Thursday.

Congress should examine how the federal tax code's incentives affect behaviors and should assess how the code can better target certain activities that reduce taxpayers' liabilities, Senate Finance Committee ranking member Mike Crapo, R-Idaho, said during a panel hearing on how the tax code affects high-income individuals.

"That includes examining provisions that primarily benefit a select group of the financially well-off — including tax credits for those who can afford expensive electric vehicles, costly energy-efficient home upgrades, and proposals to repeal the cap or expand the highly regressive deduction for state and local taxes," Crapo said.

At 3rd debate, GOP candidates support raising retirement age – PBS:

Republican presidential candidates came out swinging with benefit cuts to Social Security in order to preserve the retirement income program. Some also said they could achieve stronger economic growth, though past pledges along those lines have fallen flat.

According to a trustee’s report, Social Security will be unable to pay full benefits starting in 2033 without changes that could include less benefits or higher taxes.

Speaking of payroll taxes:

Liability Exposure For Unpaid Payroll Taxes May Surprise You - Douglas Charnas, Law360 Tax Authority ($):

The U.S. Court of Appeals for the Ninth Circuit's Aug. 11 decision in Richard W. York v. U.S. emphasizes the potential personal liability exposure that so-called responsible persons may have for payroll taxes under the Trust Fund Recovery Penalty, or TFRP, provisions of Internal Revenue Code Section 6672.

You may be a responsible person and not know it. Moreover, the failure of other personnel in a company to pay over to the IRS withheld employment taxes can result in personal liability for you, even if you are unaware of such failure.

House Yanks IRS Funding Bill, But Not Over IRS – Doug Sword, Tax Notes ($). “House Republicans pulled the appropriations bill that includes proposed IRS and Treasury funding cuts minutes before a scheduled final vote, with members blaming a new District of Columbia abortion provision along with differing views on the legislation’s deep spending cuts.”

IRS Issues New Foreign Currency Regs – Andrew Velarde, Tax Notes ($):

After years of delaying the applicability date of earlier regulations, the IRS has released long-awaited proposed regs on income and foreign currency gain or loss for qualified business units (QBUs).

The IRS and Treasury issued the 254-page proposed regs (REG-132422-17) related to section 987 on November 9. The government also reopened the comment period for proposed regs (REG-128276-12) that were issued in December 2016 alongside final (T.D. 9794) and temporary regs (T.D. 9795).

The newly proposed regs retain the basic approach of the 2016 final regs but make changes aimed at simplification and provide additional guidance on determining section 987 gain or loss and section 987 taxable income or loss.

IRS Beefing Up Capacity to Audit Foreign Withholding Tax Returns – Kiarra Strocko, Tax Notes ($):

The IRS has been expanding its audit initiatives related to foreign withholding tax and information returns, actively increasing the capacity of its examination teams by hiring experienced officials and enhancing their data analytics capabilities.

Speaking November 8 at a tax conference hosted by Kaplan Financial Education, Kimberly Schoenbacher of the IRS Large Business and International Division said that the IRS has “started to actively reach and touch many industries that [it] hadn’t previously.” Schoenbacher was referencing the ramping up of examination initiatives concerning Form 1042, “Annual Withholding Tax Return for U.S. Source Income of Foreign Persons” across the United States.

From the “Don’t Believe the Hype” file:

Speaker Johnson navigates 'mission impossible' to avoid shutdown, without clear plan – Deirdre Walsh and Eric McDaniel, NPR:

Speaker Mike Johnson is learning quickly that, although he may have received unanimous support to get the gavel, the sharp divisions among House Republicans over spending bills remain.

Two times this week, Johnson, R-La., was forced to pull federal budget bills from the floor after it became clear that Republican opposition meant they would fail to pass.

Now, there are just seven days left before the federal government is due to shutdown at the end of the day on November 17, not enough time to pass the full suite of annual budget bills.

Despite the time crunch, Speaker Johnson has not announced the details of his plan for a stopgap funding measure, which would temporarily extend government funding in order to allow lawmakers to sort out their disagreements on the full budget.

Could the Federal government suffer a partial shutdown on November 18th? Yes. But don’t judge what is currently happening as a barometer for what will happen.

Congress normally deals with deadlines on an hour-by-hour basis. A deadline that is a week away is an eternity on Capitol Hill.

When it comes to Federal government shutdowns, articles have historically used hysteria when counting down the days until the money runs out. They report that procedural rules can be so time-consuming that lawmakers will not have enough time to pass spending legislation. The truth is procedural rules can be waived and both chambers of Congress can act quickly – if they so desire.

The real question is: Do lawmakers want to extend funding for the Federal government? And we’re likely to get an answer to that question around midnight on November 17th.

Also, tax legislation could be attached to the next spending bill. So tax folks need to keep an eye on the spending fight currently happening on Capitol Hill.  

Happy National Vanilla Cupcake Day!

Fun facts:

Cupcakes have also been known as:

• Fairy Cakes
• Patty Cakes
• Cup Cakes (different from Cupcakes (one-word)