Tax News & View Crowdfunds an Extra Dessert Roundup

IRS reminds taxpayers of important tax guidelines involving contributions and distributions from online crowdfunding - IRS:

Under federal tax law, gross income includes all income from whatever source derived unless it is specifically excluded from gross income by law. Whether crowdfunding distributions are includible in the gross income of the person receiving them depends on all the facts and circumstances of the distribution.

In most cases, property received as a gift is not includible in the gross income of the person receiving the gift.

If crowdfunding contributions are made as a result of the contributors' detached and disinterested generosity, and without the contributors receiving or expecting to receive anything in return, the amounts may be gifts and therefore may not be includible in the gross income of those for whom the campaign was organized. Contributions to crowdfunding campaigns are not necessarily a result of detached and disinterested generosity, and therefore may not be gifts. Additionally, contributions to crowdfunding campaigns by an employer to, or for the benefit of, an employee are generally includible in the employee's gross income.

If a crowdfunding organizer solicits contributions on behalf of others, distributions of the money raised to the organizer may not be includible in the organizer's gross income if the organizer further distributes the money raised to those for whom the crowdfunding campaign was organized.

Taxes on the Campaign Trail

Kamala Harris to Propose Expansion of Small-Business Startup Tax Deduction - Tarini Parti, Andrew Restuccia, and Richard Rubin, Wall Street Journal:

As part of her new proposal, Harris would expand the startup-expense deduction for small businesses to $50,000. Currently, business owners can deduct up to $5,000 in startup expenses—costs they incur for items such as market surveys, advertisements and salaries for workers in training even before the business officially begins operating.

Harris would allow new businesses more flexibility in choosing when they can claim the larger deduction. By waiting until they have profits, businesses could get a bigger benefit from the deduction. Under current law, small-business owners can use the deduction, then spread other startup costs over 15 years. The deduction phases out once startup costs exceed $50,000.

The deduction for start-up costs trips up many taxpayers. You can't deduct costs of a trade or business until the business is actually underway - a date that isn't always easy to identify, especially in a research-heavy operation that may not have a saleable product at first. From IRS Tax Tip 2021-166:

Start-up costs are amounts the business paid or incurred for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and to produce income in anticipation of the activity becoming an active trade or business.

A start-up cost is recoverable if it meets both of the following requirements:

-It's a cost a business could deduct if they paid or incurred it to operate an existing active trade or business, in the same field as the one the business entered into.

-It's a cost a business pays or incurs before the day their active trade or business begins.

Harris targets small business tax break in contrast with Trump’s corporate tax cuts - Elena Schneider, Politico. "The proposal’s focus on tax breaks for small businesses attempts to craft a contrast with Trump, who has called for lowering the corporate tax rate, as well as extending and expanding his 2017 tax law."

Raise taxes on the rich or cut them? Harris, Trump differ on how to boost the US economy - Josh Boak, Associated Press via AP. "'Bigger picture: both Harris and Trump are causing the debt path to rise even faster than the fast pace under current law,' said Kent Smetters, the faculty director of the Penn Wharton Budget Model."

No Taxes on Tips – the Gresham’s Law of Campaign Policies - Douglas Holtz-Eakin, American Action Forum Daily Dish. "In economics, Gresham’s Law is the principle that bad money drives out good. The idea of no tax on tips reflects a similar phenomenon that pervades campaigns: Bad policies drive out the good ones. (Remember the gas tax holiday?) There are two key components to the canonical bad campaign policy proposal: good versus evil and punchy messaging."

Statehouse News

California Lawmakers Approve Larger Tax Break for Equipment - Paul Jones, Tax Notes ($):

A.B. 52 would temporarily provide manufacturers with a state tax credit for the local sales tax they paid on qualified equipment purchases, bill sponsor Assembly member Timothy Grayson (D) told lawmakers on the Assembly floor ahead of an August 29 vote to concur with changes made by the Senate. “Senate amendments added a trigger that would only enact the credit upon appropriation,” he said, adding that the bill “has bipartisan support and has had zero ‘no’ votes.”

...

The credit would be allowed in tax year 2025 and would expire at the beginning of 2030. The existing partial sales tax exemption is scheduled to end on July 1, 2030.

Colo. Lawmakers OK Further Property Tax Rate Cut - Sanjay Talwani, Law360 Tax Authority ($). "By a vote of 30-4 in the Legislature's second special session of the year, the Senate passed H.B. 1001, building upon assessment rate cuts and limits on local revenue increases in S.B. 233, passed in the first special session in May. H.B. 1001, previously passed by the House and heading next to Democratic Gov. Jared Polis, would save property owners $270 million in 2025 on top of the $1 billion in savings forecast in the first two years under S.B. 233, supporters say."

Road Trip

Highway Fund Insolvency Looms as 2025 Tax Cliff Tests Congress - Lillianna Byington and Samantha Handler, Bloomberg ($):

The Highway Trust Fund, which uses an increasingly obsolete gas tax rate to support transportation spending, is on track for bankruptcy in the next few years without further action from Congress. Addressing both the trust fund insolvency and the tax cliff gives lawmakers a chance to kill two birds with one stone if they can agree on a change, transportation and tax experts said.

...

The idea of shifting to a per-mile charge has gained traction as drivers turn to EVs. The Tax Foundation on Aug. 7 suggested policymakers consider replacing the gas tax with a miles tax. Some see the potential for a mileage fee as a fair way for all vehicles to pay for use of the roads, while others raise questions about privacy and feasibility on a national scale.

Confessionals

What You Need To Know About The IRS’ New Voluntary Disclosure Practice - Matthew Roberts, Forbes:

As a means to incentivize taxpayers to come forward and regain compliance with the tax laws, the IRS has historically offered a program known as the Voluntary Disclosure Practice (VDP). Under this program, taxpayers can disclose their willful conduct, submit accurate original or amended returns, and pay any outstanding taxes and interest. In exchange for all of this and a fraud penalty, the IRS usually agrees not to refer the matter for criminal prosecution...

Significantly, in June 2024, the IRS quietly revised its VDP program. Although the modifications are subtle, they represent some significant departures from the prior version of the VDP.

Blogs & Bits

4 tax moves to make this September - Kay Bell, Don't Mess With Taxes. "1. Make your third 1040-ES payment. Millions of us must make multiple tax payments each year. We have income that’s not subject to payroll withholding, such as investment earnings, pay from gig work or other self-employment, and those random sports bets that pay off. Even some Social Security recipients need to pay estimated taxes since a portion of their federal retirement payments are taxable."

Taxpayers' Schedule C Expenses Denied for Business That Never Began - Parker Tax Pro Library. "The Tax Court held that the IRS properly disallowed deductions resulting from expenses taxpayers claimed in connection with a real estate business because by the close of the year at issue the taxpayers had not started carrying on any business activity. However, the court found that the taxpayers had reasonable cause with respect to the underpayment and acted in good faith and therefore rejected the IRS's determination of a penalty under Code Sec. 6662(a); the court noted that the Code offers little guidance as to the specific actions that establish when a business begins."

More Can Be Done To Improve The Child and Dependent Care Credit - Margot Crandall-Hollick, TaxVox. "For example, they could make this credit available to student parents with limited or no earnings who receive little to no benefit from the credit. Congress could do this by relaxing the earned income requirement for single student parents with little to no earnings or married student parents who don’t earn much."

Results of a Survey Measuring Business Tax Compliance Costs - William McBride, Tax Foundation (my emphasis):

All 21 companies that responded to the survey are MNEs [multi-nantional entities], and 20 of the 21 are based in the US. The companies represent a range of industries, including manufacturing, finance and insurance, wholesale and retail, information, transportation and warehousing, mining, and services.

...

Business income taxes have become extraordinarily complex, particularly for large MNEs operating in multiple jurisdictions across the US and internationally. Multiple layers of minimum taxes, including the new CAMT and the OECD Pillar Two rules, on top of the TCJA’s complex international reforms (including GILTI, another minimum tax), and other changes under the TCJA, such as R&D amortization, have led to a substantial increase in compliance costs since 2017. Large companies may be able to absorb these costs, master the new rules, and handle additional waves of complexity and uncertainty due to economies of scale in compliance costs. However, complex policies may be reducing dynamism and competition more broadly in the economy, to the extent they present barriers to entry for, say, domestic companies seeking to grow internationally, or mid-sized companies seeking to become large companies. In other words, the case for simpler taxes is really made by considering the impacts on the millions of smaller companies and potential companies that would be allowed to flourish absent the complexities of today’s tax system.

Sauce for the goose, sauce for the IRS?

Fifth Circuit Rejects Individual's Frivolous Attempt to Penalize IRS - Tax Notes. "The Fifth Circuit, in a per curiam opinion, affirmed a Tax Court decision holding an individual liable for an income tax deficiency and related penalty, rejecting as frivolous his argument that the IRS owed him a section 6662 penalty for summarily denying his self-generated accounting statement, rather than admitting or denying it line by line."

I can't fault the Fifth Circuit here, as the taxpayer didn't have much of a case. Still, I like the idea of taxpayers being able to collect penalties for IRS negligence or abuse on the same basis the IRS can collect from taxpayers. We could call it the "Sauce for the Gander Rule." Fair's fair.

What day is it?

It's Eat an Extra Dessert Day and, by happy coincidence, National Macadamia Nut Day.

Tax News & View Crowdfunds an Extra Dessert Roundup

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Joe B. Kristan, CPA