Tax Breaks: The Just A Few Days Before The Election Edition

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Last weekend, I popped over the border to Quebec City, Canada–a trip I haven’t made since I was four. I learned a few things while there, including that Canadian football fields are bigger than those in the U.S., Canadian ounces are smaller than those in the U.S., and that people will talk about taxes almost anywhere you go. While at a distillery and meadery on an urban farm (they harvest honey from the bees they keep), I got some insight into Canadian liquor taxes–and a quick earful about the benefits of the Canadian tax system.

(If you ever see me out and about, know that I will always stop to talk about taxes).

One of the similarities between the Canadian tax system and the U.S. tax system is that most income tax and benefit amounts in both countries are indexed to inflation (only a few countries adjust their income tax thresholds for inflation—out of 160 economies, 131 have no adjustment at all).

Making those adjustments public can take some time. Last week, the IRS announced the annual inflation adjustments for 2025, including tax rate schedules, tax tables, and cost-of-living adjustments. This week, the IRS followed it up by announcing that the amount of tax-favored funds that you can sock away for retirement is increasing. The announcement is tied to cost‑of‑living adjustments for pension plans and other retirement-related items for tax year 2025 (those adjustments are required by law). The numbers indicate that in 2025, the amount most individuals can contribute to their 401(k) plans will tick up to $23,500—it was $23,000 for 2024. Other contribution limits also ticked up.(Social Security cost-of-living adjustments were also released earlier this year. (☆))

And while there’s a big emphasis on the election right now (you’ll see more later in the newsletter), here’s some election news that doesn’t involve politics. A staff lawyer with the IRS Office of Chief Counsel revealed that the agency is finalizing an official IRS form for the Section 83(b) election. There are scenarios with equity compensation—specifically restricted stock, stock options, and LLC interests—in which making a timely section 83(b) election with the IRS can be important. Currently no official IRS form exists for making that election, which means this could be a game-changer.

In some not-so-great news, the nation’s top tax watchdog, the Treasury Inspector General for Tax Administration (TIGTA), issued a report finding that between August 12, 2023, and April 16, 2024, fraudsters tried to fraudulently file 4,828 tax returns in an attempt to steal $462 million in refunds. Of those claims, the IRS detected and stopped 4,254 bad claims—fraudsters were still able to file 574 improper returns claiming more than $47 million. The worst part? Fraudsters were able to access the information (☆) using the Practitioner Priority Service (PPS), a hotline set up for tax professionals. It’s a good reminder for us all to be careful out there–and be patient with additional processes intended to protect your data and prevent fraud.

I’m already hearing grumbling about the end of Daylight Saving Time (DST) this weekend. (Admittedly, the grumbling started with me.) We haven’t always had a uniform(ish) observance of DST–that didn’t happen until 1966. The reasons for the unpopular time switches are complicated (spoiler alert: they did not involve farmers) but are linked to money and energy policy.

Energy policy can be controversial. However, a recent bipartisan measure, The Methane Reduction and Economic Growth Act, which originated in the Inflation Reduction Act, has a real chance now that it has sponsors in both the House and Senate. The bill proposes adding to the section 45Q credit for carbon sequestration a provision allowing a credit for capturing qualified methane from mining activities. That doesn’t make headlines in the same way that turning back the clocks will–which is why tax measures are often tied to non-tax measures, like expanding the DST. (☆)

And as much as many folks would love to see an end to the time switches, we won’t be so lucky this year. As we ease into the weekend, remember to set your clocks and watches back. We will officially “fall back” one hour on Sunday, Nov. 3, 2024, at 2 a.m. local time, as DST ends.

Enjoy your weekend–and set double alarms,

Kelly Phillips Erb (Senior Writer, Tax)

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Taxes From A To Z: W Is For Wash Sales

For tax purposes, a wash sale occurs when you sell or trade stock or securities at a loss, and then, within 30 days before or after the sale, you buy or acquire substantially identical stock or securities.

A substantially identical stock or security is precisely what it sounds like. You have a wash sale when you sell shares of a stock or security and then buy exactly the same stock or security. You can also end up with a wash sale if you sell shares of a stock or security and buy shares of stock or security of a related company, including predecessor or successor companies in a reorganization. The wash sale rules also apply to losses from sales or trades of contracts and options to acquire or sell stock or securities.

Typically, the IRS considers the facts and circumstances when determining whether a stock or security is “substantially identical.” Notably, wash sales rule applies per person, not per account. Selling assets inside one account and then buying a substantially identical asset in a different account is not a workaround—the rules still apply.

You report a wash sale using Form 8949, Sales and Other Dispositions of Capital Assets. The code for a wash sale is “W,” which you put in column (f).

Why does it matter? Most taxpayers can’t deduct losses from sales or trades of stock in a wash sale—that makes any tax harvesting involving a wash sale somewhat useless in that tax year. While you lose the deduction, it’s not all bad—you can add the amount of the loss to the cost basis of the replacement stock or security which could be beneficial down the road.

You can already see where this is going. If you can offset gains with losses, that can be tax advantageous. And—without any pesky wash sale rules—if you have a losing asset, you can sell it off at a low point to take advantage of the loss and turn around and rebuy it.

Wash sale rules don’t apply to every asset. They do not, for example, apply to losses from sales or trades of commodity futures contracts or foreign currencies. And, notably, they don’t apply to digital assets (☆) —at least for now. That’s because digital assets, including cryptocurrency, don’t meet the definition of a stock or security in the statute or Regs.

While the rules appear straightforward, buying and selling can be complicated. If you have questions, check with your tax professional.

Questions

Earlier this week, I posted a reminder on social media about influencing and brand relationships (I field a lot of related questions). So, I noted two things:

• If you endorse a product through social media, you should clearly state that you have a relationship with the brand. That’s an FTC requirement.
• And, of course, yes, you should report payment for your endorsement to the IRS. That includes if you’re “paid” with products. Failure to do so could land you in tax trouble.

I received a response that is worth repeating—and expounding upon. The question was:

What about gifts? I get a fair amount of kitten food, supplies, etc., from people and sometimes brands for my fosters, but it’s a gift, not for endorsement. I have no business relationship with them and I’m not a business. Fostering loses me hundreds of dollars every year. But should I track it?

This is a great question because there are so many components. I’ll handle the tracking question first. If you foster or rescue animals, your out-of-pocket expenses (food, medicine, and veterinary bills) may be deductible for charitable purposes so long as you:

1. Perform services on behalf of a qualifying charitable organization;
2. Keep excellent records which clearly show that the expenses are for charitable and not personal expenses;
3. Get a contemporaneous acknowledgment of your contribution from the qualifying charitable organization; and
4. Remember that the value of your time is not deductible.

In 2011, the Tax Court made it official when it upheld most expenses related to the care of feral cats fostered by a taxpayer. The Court agreed with the taxpayer that the expenses could be treated as out-of-pocket expenses incurred while performing services for a qualifying charitable organization. (Expenses were only allowed to the extent the taxpayer had substantiated them.) For more about charitable giving, generally, check out this previous article.

As to the gifts, the answer is “it depends.” In the case of this taxpayer, it sounds like the answer is no. However, as a general rule, if you’re expected to perform a service—including an endorsement or product placement in a post or video—in exchange for a “gift,” then it may be taxable.

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Do you have a tax question or matter that you think we should cover in the next newsletter? We’d love to help if we can. Check out our guidelines and submit a question here.

Statistics, Charts, and Maps (Oh My!)

Halloween has come and gone–and you, like me, may have a few pieces of candy left over (though, in my case, with two kids home this weekend, the remaining candy will likely quickly disappear). While eating candy is easy, figuring out the specifics of taxing candy is far from child’s play. Candy is one of the most complicated products to define when it comes to sales tax. (☆)

On the state level, almost every state imposes some kind of sales tax on certain goods and services. The exceptions are the five sales tax-free states of Alaska, Delaware, Montana, New Hampshire, and Oregon. Often, the imposition of sales tax is closely tied to whether an item is essential—that means that groceries and clothing, for example, will often not be subject to sales tax. Definitions, however, can vary.

The Streamlined Sales and Use Tax Agreement (SSUTA) is an attempt to simplify and modernize sales and use tax administration, which would substantially reduce the burden of tax compliance. A state must comply with the requirements to be a member state. Currently, just 24 states have signed on. Here’s a look at which states are on board:

A Deeper Dive

With just days to go before Election Day, taxes are top of mind for many voters–and our tax writers. In many ways, Donald Trump and Kamala Harris have drawn tax policy maps that are mirror images of one another. While a few ideas overlap, the two candidates could not be charting more divergent tax policy paths.

A central theme of Trump’s economic plan is a 20% worldwide tariff and a 60% tariff on Chinese goods. Those moves would increase household taxes by an average of nearly $3,000 in 2025, according to a new analysis by the Tax Policy Center. Overall, Trump’s plan would lower average after-tax incomes by 2.9%.

Harris has largely adopted most of President Biden’s tax proposals, including an initial plan to tax some unrealized capital gains. Billionaire supporter Mark Cuban criticized the plan and recently said Harris no longer supports it. But others say there’s no evidence that she has abandoned her wealth tax.

Estate planners are also trying to predict what will happen to the tax code as it relates to estate planning depending on whether Harris or Trump wins the presidential election. Here are some best guesses about what could happen to the tax code in relation to estate planning matters.

As for business owners? Ahead of November 5, small businesses—the most trusted institution in America according to a Gallup poll—report record uncertainty. However, those jitters may be unfounded. Both presidential candidates are wooing small businesses, which means they will win either way. (☆)

And while federal tax questions have dominated the headlines this election cycle, state and local taxes can have a big impact on both individuals and businesses. Here’s a look at some of the most significant state tax matters on the ballot (☆)—as well as one that fell off (I’m looking at you, California).

Tax Filings And Deadlines

📅 February 3, 2025. Due date for individuals and businesses affected by Hurricanes Beryl and Debby (more info here (☆) and here (☆)), those in South Dakota affected by severe storms, straight-line winds and flooding that began on June 16, 2024, taxpayers in Puerto Rico affected by Tropical Storm Ernesto, and those individuals and businesses in Connecticut and New York affected by severe storms and flooding from torrential rainfalls that began on August 18, 2024.

📅 May 1, 2025. Due date for individuals and businesses in the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia affected by severe storms and flooding from Hurricane Helene (☆) and Hurricane Milton.

📅 September 30, 2025. Due date for individuals and businesses impacted by recent terrorist attacks in Israel.

Tax Conferences And Events

📅 November 11-13, 2024. AICPA-CIMA 2024 Women’s Global Leadership Summit, Hyatt Regency Bellevue, Bellevue, WA. Virtual. Registration required.

📅 November 18, 2024, 1 p.m. to 2:30 p.m. ET. IRS webinar to help large business taxpayers understand the Compliance Assurance Process (CAP, which helps large corporate taxpayers improve federal tax compliance through real-time issue resolution tools). Free. Registration required, space is limited to the first 1,000 registrants.

📅 December 12-14, 2024. ABA Section of Tax, 2024 Criminal Tax Fraud and Tax Controversy Conference, Las Vegas, NV. CLE available. Registration required. (Maybe I’ll see you there?)

📅 December 16-17, 2024. NYU 43rd Institute on State and Local Taxation, Westin New York at Times Square, New York, NY. CLE and CPE available. Registration required, virtual option available.

Trivia

There’s a lot of talk about tax rates during the election. What is considered the highest top individual marginal income tax rate in U.S. history?

(A) 62%

(B) 78%

(C) 86%

(D) 94%

Find the answer at the bottom of this newsletter.

Positions And Guidance

The Financial Crimes Enforcement Network (FinCEN) has extended beneficial ownership information (BOI) report filing deadlines for reporting companies affected by Hurricanes Milton, Helene, Debby, Beryl, & Francine. (☆) FinCEN previously granted extensions for filing Form 114, Report of Foreign Bank and Financial Accounts, commonly known as an FBAR. (☆)

The IRS has published Internal Revenue Bulletin No. 2024-44.

Noteworthy

CBIZ, Inc., a national professional services advisor, has completed the acquisition of the non-attest business of Marcum LLP, with expected combined annualized revenue of approximately $2.8 billion. The transaction makes CBIZ the largest full-service professional services advisor of its kind in the U.S. providing accounting, tax, advisory, benefits, insurance, and technology services, primarily to middle-market businesses. Related, the attest business of Marcum was acquired by CBIZ CPAs, a national independent CPA firm with which CBIZ has had an Administrative Service Agreement for over 25 years.

The IRS announced that Jeffrey Erickson will be the first Associate Chief Counsel for the newly created Passthroughs, Trusts, and Estates office that will focus exclusively on partnerships, S corporations, trusts, and estates. Erickson is expected to join the IRS in January 2025—he previously served as a Principal in Ernst & Young’s National Tax Passthroughs Transaction Group. Holly Porter will be the Associate Chief Counsel for the Energy, Credits, and Excise Tax office, which also will be drawn from the current Passthroughs and Special Industries office.

Holland & Knight has strengthened its tax, executive compensation and benefits practice with the addition of Lindsay Murphy as a partner in Dallas. Murphy was previously a partner with Jones Day.

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If you have career or industry news, submit it for consideration here or email me directly.

In Case You Missed It

Here’s what readers clicked through most often last week:

• IRS Announces 2025 Tax Brackets, Standard Deductions And Other Inflation Adjustments
• IRS Announces 2024 Tax Brackets, Standard Deductions And Other Inflation Adjustments

You can find the entire newsletter here.

Trivia Answer

The answer is (D) 94%.

In 1944, top taxpayers paid a top income tax rate of 94% on taxable income. For married taxpayers filing jointly, that applied to income over $200,000–that’s just north of $3.5 million in today’s dollars. The cost of the war was steep, and since Congress rejected the idea of a national sales tax in 1942, they raised income tax rates instead.

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