Despite the fact that the thermometer still reads summer, fall is creeping closer. According to the National Retail Federation, one in five (22%) back-to-school shoppers have already started gearing up for the 2024-25 school year (you can count me as one of them). However, with above-average prices in stores and online, those shoppers are looking for a bargain. A sales tax holiday is a period of time—often falling over a weekend—when a state will waive or reduce their sales tax payable on certain items. Many states focus their annual sales tax holiday on back-to-school supplies, though some—like Florida—offer sales tax holidays on more goods and services. Some of those sales tax holidays start this weekend.
Also on the rise? California business taxes. The state recently passed legislation that suspends the net operating loss deduction for tax years beginning on or after January 1, 2024, and before January 1, 2027. The suspension applies to taxpayers with more than $1 million in net income for the tax year. Modified adjusted gross income excludes deductions from NOLs. Combined with the NOL suspension during 2020 to 2021, with the current pause on NOL deductions, only the taxable years 2022 to 2023 are eligible for the California NOL deduction.
Corporations are still grappling with a 2021 law, the Corporate Transparency Act—or CTA—which took effect this year. The law requires reporting companies to file reports with FinCEN, the Financial Crimes Enforcement Network. FinCEN has been rolling out guidance—including new FAQ information posted as of July 8, 2024. And, the CTA has been challenged in court. If you’re looking for an update on where things stand, you can find it here.
You couldn’t go far this summer without hearing about Project 2025, a blueprint for the United States federal government and to consolidate executive power should the Republican nominee, presumably Donald Trump, win the 2024 presidential election. Tax reform is included in the proposal, found mostly in Chapter 22, Department of Treasury. Stage 1 “intermediate” reform would retain the basic structure of the Tax Cuts and Jobs Act (TCJA) but dramatically adjust its moving parts, while stage 2 “fundamental reform” would abolish individual and corporate income taxes and replace them with a consumption tax.
Project 2025 also calls for the IRS budget to be cut. That may appeal to those facing increased audit prospects—including those with high incomes. A Treasury Inspector General for Tax Administration (TIGTA) report found that to meet an audit quota set in 2020, the IRS started examining tax returns that fit a designated profile of “high income” taxpayers, even if these returns did not show typical signs of irregularities (high-income taxpayers were defined as those with a total positive income of $10 million or more). As a result of trying to reach the quota directive, TIGTA reports that the drop in efficiency at the IRS was so steep that the agency has ceased compliance with this directive and changed its course.
That doesn’t mean that the IRS isn’t focused on enforcement efforts. The IRS recently announced the collection of $1 billion in past-due taxes from millionaires since 2023. The average tax levy on those individuals was $625,000.
The news isn’t all bad for high-income households—those making about $450,000 or more would receive more than 45% of the benefits of extending key provisions of the TCJA according to a new analysis by the Urban-Brookings Tax Policy Center. Making those provisions permanent would, the report found, cut taxes for households in the top 1% of income (those making $1 million or more) by 3.2%, while the top 0.1%, who will make $5 million or more, would receive an average tax cut of nearly $280,000, or 3% of their after-tax income.
Taxes From A To Z: G Is For Garnishment
One of the ways that the IRS works to make sure they get paid is the use of a levy. A levy is a legal seizure of your property. Wages can be levied—that’s typically referred to as a wage garnishment—but there are limits. By statute, the amount that’s exempt from levy is determined by a formula. That amount is equal to the standard deduction plus an amount determined under section 6334(d)(4)(B)—for 2024, that number is $5,000 (that amount is multiplied by the number of the taxpayer’s dependents for the taxable year in which the levy occurs)—divided by 52. The result is your weekly exempt amount.
If the IRS garnishes your wages, that will continue each pay period until you make other arrangements to pay your overdue taxes, the amount of overdue taxes you owe is paid, or the levy/garnish is released.
Statistics
The latest annual report to Congress issued by the IRS Whistleblower Office suggests more taxpayers than ever are blowing the whistle on bad tax behavior. The IRS paid whistleblowers 121 awards totaling $88.8 million in 2023—those amounts correspond to information that resulted in tax collections of $338 million. That’s a significant increase from the total whistleblower awards paid in 2022, when just $37.8 million were distributed.
While these numbers may sound impressive, coming forward can be challenging. Whistleblower protections are relatively new, explains Sherron Watkins. Watkins would know. She made news in the early 2000s when she alerted Kenneth Lay, Enron’s then-CEO, about accounting irregularities in financial reports.
Questions
This week, a reader asks:
I inherited an IRA, and I know I am required to take minimum distribution each year from it. However, I have a student loan that is deferred based on my income. The same issue is for my health insurance via the marketplace; it’s income dependent. Do these inherited IRAs impact those things?
Healthcare premiums from the marketplace and many student loan repayment plans rely on your modified adjusted gross income (MAGI)—that number is very close to your adjusted gross income (AGI) that you’ll find on line 11 of your Form 1040. Unfortunately for you, MAGI typically includes distributions from retirement plans, including most IRA and 401k withdrawals.
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.
