Income Tax News

Individual tax rulings

All individual tax rulings are available in the Unified Register of Individual Tax Rulings at the link and can be found by their relevant numbers.

Summary of the tax authorities’ positions regarding the CFC rules

The practical application of CFC rules is now coming to the force and the first CFC reports have to be submitted by 1 March or 1 May 2024 (depending on whether the controller is a legal entity or an individual). However, the long-awaited Draft Law No. 8137 has not yet been adopted and its adoption still remains an urgent challenge. Below, we have summarized the tax authorities’ recent standpoints regarding CFC following the current provisions of the Tax Code of Ukraine (TCU):

• Regarding the procedure for submitting copies of financial statements (ITR No. 3466/ІПК/99-00-24-03-03-09 dated 09 October 2023)

When financial statements are submitted in English, they need not be translated into Ukrainian. However, documents in languages other than English are required to be translated into Ukrainian and properly certified in accordance with Article 78 and Article 79 of the Law of Ukraine “On Notary”.

• Regarding the liability for late submission of a CFC Notification (ITR No. 3552/ІПК/99-00-24-03-03-09 dated 13 October 2023)

Para. 120.7 (current version), Article 120, Section ІІ of the TCU does not provide for a penalty for late notification by the controlling person of acquisition of share in a foreign legal entity or an entity without a legal entity status, or of the beginning of actual control over a foreign legal entity, or of the termination of actual control over a foreign legal entity. However, Draft Law No. 8137 may introduce changes in para. 120.7 of Article 120 of the TCU that provides for a penalty for late notification.

• Regarding the need for a CFC to submit a notification after the redomiciliation procedure and whether the redomiciled legal entity should be considered as a new legal entity (ITR No. 3835/ІПК/99-00-24-03-03-09 dated 30 October 2023)

The submission by the controlling person of the Notification after the completion of the legal entity redomiciliation procedure is not required in the subpara. 39-2.5.5, para. 39-2.5, Article 39-2, Section I of the TCU. However, the controlling person remains under obligation to submit a CFC report with a direct presentation of information that has been changed due to the transfer of a foreign legal entity to another jurisdiction.

The redomiciled entity may be considered as a new legal entity taking into account the specifics of the jurisdiction to which such entity has been transferred.

• Regarding the certifying of a copy of financial statements with an electronic signature (ITR No. 3869/ІПК/99-00-24-03-03-06 dated 31 October 2023)

Given that the properly certified copies of the CFC’s financial statements are submitted in electronic form together with the CFC Report via electronic communication means in compliance with the law on electronic document workflow and a qualified electronic signature, they (electronically signed copies of the financial statements) will have legal effect and be deemed duly certified since the person that applies an electronic digital signature certifies the accuracy of the information contained in the electronic document, in particular, in the CFC’s financial statements.

• Regarding the definition of the “total comprehensive income” within the meaning of subsubpara. 39-2.4.2.1, subpara. 39-2.4.2, para. 39-2.4, Article 39-2 (ITR No. 3937/ІПК/99-00-24-03-03-09 dated 03 November 2023)

According to International Financial Reporting Standards 1, the total comprehensive income includes all components of “profit or loss” and “other comprehensive income”.

For the purpose of elaborating a unified approach to the “total comprehensive income” defined in subpara. 39-2.4.2.1, para. 39-2.4, Article 39-2 of the TCU, and a calculation algorithm, the STS will prepare the relevant request to the Ministry of Finance of Ukraine.

• Regarding the correct completion of data in Columns 10.1 and 14.1 in the CFC Notification regarding companies of the Republic of Cyprus (ITR No. 3938/ІПК/99-00-24-03-03-06 dated 03 November 2023)

When filling in the CFC Notification form, it is required that the Taxpayer Identification Number (TIN)—not registration number in the Registrar of Companies Cyprus—be specified in Column 10.1 Taxpayer’s Code in the country of registration and Column 14.1 Information about persons who exercise indirect ownership.

• Regarding the need to submit a CFC Report in case of liquidation of a foreign entity during the reporting period (ITR No. 4741/ІПК/99-00-24-03-03 dated 19 December 2023).

Article 392 of the TCU regulates the obligation of residents of Ukraine, both individuals and legal entities, to submit a CFC Report, provided that they are the controlling individuals/entities as of the end of the reporting period.

That is, if the controlling individual/entity has lost control over the CFC before the end of the reporting period, they are not under obligation to submit the CFC Report together with their annual income return for such reporting period; yet, they must submit a Notification of termination of their participation in the CFC due to its liquidation.

Deloitte’s comment. Since the tax authorities’ standpoints and approaches change quite often and may differ in different territorial bodies, we continue to keep a close watch on ITR practices.

We hope that Draft Law No. 8137 On Amendments to the TCU regarding the improvement of CFC Taxation will be finally adopted and resolve some of the current issues.

In the meantime, regarding the existing legislative uncertainties, we can recommend that: 1) individual tax ruling should be obtained on behalf of the controllers of your CFCs, at the least, in order to avoid fines if the tax authorities’ position changes and/or 2) arguments to support a certain position you have taken/are planing to take (so called “defense file”) should be prepared for cases when the tax authorities may have questions. This is where we will gladly help you.

Regarding how payment of non-resident’s income earned under an agreement for sale and purchase of another non-resident’s shares is taxed in Ukraine

(ITR No. 4054/ІПК/99-00-21-02-02-06 dated 09 November 2023)

The taxpayer inquired from the controlling authority whether the income paid by a resident of Ukraine under an agreement for sale and purchase of equity rights (100%) of a legal entity, resident of Cyprus, is subject to taxation in Ukraine (i. e. a Ukrainian company purchases non-resident’s shares from another non-resident).

The tax authority replied that payment for equity rights of a non-resident legal entity, which 1) neither directly nor indirectly owns and does not use any real estate located in Ukraine on a long-term leasehold basis, and 2) the value of corporate rights of non-resident is not derived from shares/ interest in a Ukrainian legal entity owning real estate in Ukraine, is not subject to tax on non resident’s Ukraine-sourced income.

However, if this transaction is controlled in terms of transfer pricing and the payment amount exceeds the arm’s length amount, the resident will be required to withhold the tax on non-resident’s income (taxation of so-called “constructive dividends”).

Deloitte’s comment. Formally, the position taken by the tax authority regarding the absence of a taxable amount is in line with provisions of the TCU. However, in practice, the tax authorities (as well as Ukrainian banks that process relevant payments) may have additional questions regarding such transactions; therefore, the abovementioned ITR can be used as arguments, should this happen.

It should be borne in mind that, in addition to “constructive dividends” (even in case of uncontrolled transactions), the tax authorities may apply a 30% adjustment based on Article 140.5 of the TCU, in particular, to transactions with corporate rights/shares. Therefore, we advise you to take this into account when performing such operations.

Regarding the taxation of dividends paid under an assignment of claims agreement

(ITR No. 3628/ІПК/99-00-21-02-02-06 dated 17 October 2023)

The taxpayer (Company) applied to the controlling authority regarding the application of the preferential rate under the Convention between Ukraine and Poland when paying dividends to a new creditor.

A legal entity, resident of the Republic of Poland (Non-resident), owns 25% of the authorized capital of the Company. According to the tripartite assignment of claims agreement, the Non-Resident assigns to a legal entity, resident of Ukraine, which is not a member of the Company, the right to claim payment of dividends based on the 2021 results of the Company’s activities.

The tax authority stated that the transfer of funds to the resident (New creditor) is considered (in view of its economic substance) as payment of income in the form of dividends in favor of the non-resident founder.

At the same time, with reference to para. 103.3 of Article 103 of the TCU, the tax authority noted that, according to the Convention, the preferential tax rate does not apply for the payment of dividends in favor of a non-resident executing an assignment agreement for the right to claim payment of dividends in favor of another person-resident of Ukraine.

Deloitte’s comment. The tax authority considered the transaction based on the substance-over-form principle and actually equated the assignment of the right to claim dividends to payment of dividends to a non-resident in the mentioned situation.

That is, as defined in the TCU, this is formally considered as payment of income to a non-resident’s authorized agent with an obligation to withhold a tax at the time of payment of such income to the agent. At the same time, the TCU also allows an “end-to-end approach” to determine the beneficial owner of income. In case of replacement of the creditor, income will, from legal standpoint, arise for the new entity-resident of Ukraine, but the actual (economic) owner of the dividends is the Polish company. Therefore, in view of the fiscal approach of the tax authorities, it is possible to try to justify the application of the reduced rate to payment of income under the Convention between Ukraine and Poland (which is essentially correct).

Since this is quite an urgent and disputable issue, especially amidst current currency restrictions, we recommend performing a separate analysis for each case.

Regarding how to determine the tax residency status of a Ukrainian company if its actual place of management changes

(ITR No. 4695/ІПК/99-00-21-02-02 ІПК dated 18 December 2023)

The taxpayer applied to the controlling authority regarding whether the change of residence of the head of a Ukrainian LLC (from Ukraine to Austria) is a change of the place of effective management and whether this leads to a change in the LLC’s tax residency status.

The tax authority came to the conclusion that the tax residency criteria specified in Article 4 of the Convention between Austria and Ukraine for the avoidance of double taxation (the “Convention”) are used to determine individuals/entities covered by the Convention, and are applied rather to implement its provisions than to determine or change the tax (residency) status of such individuals/entities, since the status is determined by each of the countries-parties to the Convention (Ukraine and Austria).

Also, the tax authority emphasized that the provisions of the Convention regulate the taxation rules applied to income arising in the tax relations between Ukraine and Austria and do not constitute legal grounds for determining or changing the tax (residency) status of a certain individual/entity in the relevant state.

In addition, the tax authorities point out that the LLC’s residency is determined in accordance with the local (in this case, Ukrainian) legislation; therefore, it should be the same as the LLC’s place of registration in Ukraine. However, the actual place of stay and residency of the director of the LLC may lead to creation of a permanent establishment in Austria, in which case the LLC may also be subject to taxation in Austria in respect of the income generated from activities of such permanent establishment.

Deloitte’s comment. In view of the forced relocation of key employees of Ukrainian companies, the actual place of management is the issue of the day.

In general, it is advisable to avoid a situation where a company is registered in one jurisdiction but actually managed from another jurisdiction; even if this does not lead to the risk of its being fully recognized as a tax resident of such other jurisdiction, which depends on each individual country and its rules for determining the residency of companies, such other jurisdiction may claim taxes on all or a part of the foreign company’s income through recognizing it as a permanent establishment.

At the same time, the mentioned tax authority’s ITR is extremely controversial, since tax consequences directly depend on what jurisdiction is determined as a individual’s/entity’s tax residency jurisdiction. Unless a single country of tax residency is determined, it is impossible to correctly implement provisions of the special articles of the convention on taxation of certain types of income, and, therefore, the provisions of Article 4 of the Convention shall prevail over provisions of the local legislation of the countries-parties to the Convention.

Originally Appeared Here

STATEN ISLAND, N.Y. — Still need to file your taxes before the April 15 deadline? If you saw a significant change in income over the past year, you may find yourself in a new tax bracket.

In October, the Internal Revenue Service (IRS) announced new brackets with adjusted thresholds, boasting upper limits that are 7% higher than last year. The tax rates have remained the same, ranging from 10% to 37% depending on an individual’s total taxable income.

In addition to the new tax brackets, the standard deduction, the amount you can deduct to adjust the amount of income on which you’re taxed, has also increased from $12,950 to $13,850 for single filers and from $25,900 to $27,700 for married couples filing jointly.

Here’s a look at the new tax brackets that will be used when filing in 2024.

MARGINAL TAX BRACKETS FOR SINGLE FILERS

• $11,000 or less in taxable income – 10% of taxable income
• $11,001 to $44,725 in taxable income – $1,100 plus 12% over $11,000
• $44,726 to $95,375 in taxable income – $5,147 plus 22% over $44,725
• $95,376 to $182,100 in taxable income – $16,290 plus 24% over $95,375
• $182,101 to $231,250 in taxable income – $37,104 plus 32% over $182,100
• $231,251 to $578,125 in taxable income – $52,832 plus 35% over $231,250
• $578,126 or more in taxable income – $174,238 plus 37% over $578,125

MARGINAL TAX BRACKETS FOR MARRIED COUPLES FILING JOINTLY

• $22,000 or less in taxable income – 10% of taxable income
• $22,001 to $89,450 in taxable income – $2,200 plus 12% over $22,000
• $89,451-$190,750 in taxable income – $10,294 plus 22% over $89,450
• $190,751-$364,200 in taxable income – $32,580 plus 24% over $190,750
• $364,201 to $462,500 in taxable income –$74,208 plus 32% over $364,200
• $462,501 to $693,759 in taxable income – $105,664 plus 35% over $462,500
• $693,751 or more in taxable income – $186,601 plus 37% over $693,750

FILING IN 2025

The IRS has also announced new income tax brackets for tax year 2024, which will be used when filing taxes in 2025.

The standard deduction will also increase from $13,850 to $14,600 for single filers and from $27,700 to $29,200 for married couples filing jointly.

Here’s a look at the new tax brackets that will be used when filing in 2025.

TAX BRACKETS FOR SINGLE FILERS

• $11,600 or less in taxable income – 10% of taxable income
• $11,600 to $47,150 in taxable income – $1,160 plus 12% of the excess over $11,600
• $47,150 to $100,525 in taxable income – $5,426 plus 22% of the excess over $47,150
• $100,525 to $191,950 in taxable income – $17,168.50 plus 24% of the excess over $100,525
• $191,950 to $243,725 in taxable income – $39,110.50 plus 32% of the excess over $191,150
• $243,725 to $609,350 in taxable income – $55,678.50 plus 35% of the excess over $243,725
• $609,350 or more in taxable income – $183,647.25 plus 37% of the excess over $609,350

TAX BRACKETS FOR MARRIED COUPLES FILING JOINTLY

• $23,200 or less in taxable income – 10% of taxable income
• $23,200 but not over $94,300 – $2,320 plus 12% of the excess over $23,200
• $94,300 but not over $201,050 – $10,852 plus 22% of the excess over $94,300
• $201,050 but not over $383,900 – $34,337 plus 24% of the excess over $201,050
• $383,900 but not over $487,450 – $78,221 plus 32% of the excess over $383,900
• $487,450 but not over $731,200 – $111,357 plus 35% of the excess over $487,450
• $731,200 or more in taxable income – $196,669.50 plus 37% of the excess over $731,200

TRACKING YOUR REFUND

If you’re one of the millions of Americans who have already sent in their tax returns, there are online portals that will allow you to monitor the status of your refund.

For federal taxes, residents can use the IRS “Where’s My Refund” tool or the IRS2Go mobile app to see when their refunds have been received, processed and sent.

Refund status will appear roughly 24 hours after you e-file a current-year return, three or four days after you e-file a prior-year return or four weeks after you file a paper return.

To access the information, which is updated overnight each day, residents must provide their Social Security or individual taxpayer ID number (ITIN), filing status and exact refund amount on their return.

Once refunds are sent, those using direct deposit should receive their refund within five days, while those expecting checks in the mail may have to wait several weeks.

For state taxes, New Yorkers can visit the Department of Taxation and Finance website and click “Check refund status.”

This allows residents to see if their return has been received; when it has being processed; if the return requires additional review; if the state requires additional information; if a requested refund amount has been adjusted and when a refund has been issued.

Originally Appeared Here

TAX HELP: University of Holy Cross students and Entergy volunteers will offer free tax assistance to Entergy customers Feb. 24, 9 a.m.- 3 p.m., in the UHC Moreau Center, 4123 Woodland Drive in New Orleans. UHC’s free tax prep will continue every Saturday through April 6 (except March 9 and 30). www.uhcno.edu.

 

GUMBALAYA COOK-OFF: The St. Angela Merici Men’s Association will sponsor a cooking competition on Feb. 24, 4:30-9:30 p.m., at the school, 835 Melody Drive in Metairie. Tickets include gumbo, jambalaya/pastalaya and lagniappe tastings prepared by cooking krewes. Tickets are $20 adults; $10 children, with 5 and under free. www.stangelaschool.org/.

BOOK SALE: The Friends of Jefferson Public Library’s first warehouse sale will be held Feb. 24, 10 a.m.-4 p.m. at the East Bank Regional Library, 4747 W. Napoleon Ave. in Metairie. Purchase prepackaged boxes — children’s literature, romance or fiction (combination of hardback and paperback) — for $5 per box. Cash only; boxes sold sight unseen. Proceeds benefit the Jefferson Parish Library. FriendsJPL@yahoo.com or (504) 445-2665.

COOK-OFF FOR THE COAST: The event raising awareness about coastal restoration will be held Feb. 24, from 11 a.m.-3 p.m., at Docville Farm in St. Bernard Parish, 5124 E. St. Bernard Highway in Violet. Teams prepare dishes featuring wild game found in Louisiana’s coastal wetlands. Proceeds benefit the Chandeleur Sound Living Shoreline Program. coastcookoff.com.

PLANT SALE: City Park Conservancy will hold a plant sale March 1-3, 9 a.m.-noon, at the Pelican Greenhouse at City Park, 2 Celebration Drive in New Orleans. Plants start at $3. Availability lists are posted Tuesday before the sale. (504) 483-9437 plants@nocp.org.

ARTS MARKET: City Park Conservancy will hold its monthly arts market March 9, 10 a.m.-4 p.m., at the Goldring/Woldenberg Great Lawn at City Park, 8 Victory Ave. in New Orleans. The market features more than 30 local and Gulf South artists who showcase handmade works. artsneworleans.org.

BIG BASS FISHING RODEO: The 75th annual fishing rodeo, the oldest freshwater rodeo in the country, will be March 23 at 56 Dreyfous Drive in New Orleans City Park. Other activities include a fishing competition for grades 7-12; a competition for kayakers and nonmotorized vessels on Bayou St. John; and Fishtival, a free event with a DJ and more. Registration opens at 6:30 a.m., with the Fishtival 9 a.m.-noon. Tickets start at $10. neworleanscitypark.org.

ST. JOSEPH ALTARS

ARCHBISHOP CHAPELLE HIGH SCHOOL: Altar viewings will be from noon to 8 p.m. March 18-19 at the gymnasium, 8800 Veterans Memorial Blvd. in Metairie. An altar blessing will be held at noon March 18, and a rosary at 7 p.m. On March 19, Tupa Tupa will be at noon, with lunch following in the cafeteria. Viewings will be held 9 a.m.-4 p.m. www.archbishopchapelle.org.

CULTURE AND CONCERTS 

REMEMBER OUR HERITAGE: The St. Joseph Missionary Baptist Church Library Ministry, including the Westside Youth Choir and St. Joseph MBC’s Youth/Young Adult Choir, will perform the musical, “Our History in Song,” on Feb. 23, 7 p.m., at the church, 236 Robinson Ave. in Marrerro. www.stjosephbaptistchurch.org.

POPP UP MUSICAL STORYTIME: The Louisiana Philharmonic Orchestra series returns to Popp Bandstand at City Park, 54 Dreyfous Drive in New Orleans, on Feb. 24, 10:30-11 a.m., with cellist David Rosen. Free neworleanscitypark.org.

THE TRAIL THEY BLAZED: A traveling exhibit from The Historic New Orleans Collection will be on view through March 4 at the Blaine Kern Library at the University of Holy Cross Algiers campus, 4123 Woodland Drive in New Orleans. The exhibit features more than 40 quotes and sound bites from New Orleans and Lower 9th Ward participants in the local civil rights movement and highlights the 1963 march on City Hall. www.hnoc.org.

MUSICAL LOUISIANA: L’ARRIVEE: The Louisiana Philharmonic Orchestra will perform featuring the Ursuline Manuscripts and chamber ensembles Variant 6 and Filament, Feb. 28, 7:30 p.m., at St. Louis Cathedral, 615 Pere Antoine Alley in New Orleans. lpomusic.com.

NEW ORLEANS WOMEN IN MUSIC: The concert series, held each March during Women’s History Month and sponsored by the New Orleans Jazz & Heritage Foundation, will feature women performers at the George and Joyce Wein Jazz & Heritage Center, 1225 N. Rampart St. in New Orleans. Performers are Susan Cowsill, March 1; Mikayla Braun, March 2; Margie Perez, March 8; Dawn Richard, with Charm Taylor opening, March 9; Anna Moss, March 15; and Tarriona Ball Poetry, with Indys Blu opening, March 16. Doors open at 7 p.m.; concerts begin at 8 p.m. Tickets are $10; registration required. events.jazzandheritage.org.

ABOVE THE FOLD: “Above the Fold: The History of Newspapers in Louisiana” will be presented by The Historic New Orleans Collection, 520 Royal St. in New Orleans, on Feb. 24, 9 a.m.-5 p.m. Speakers will explore how the medium has evolved from the decades leading up to the Civil War to the present day. $25-$75 through Eventbrite. www.hnoc.org.

PRINCE HALL MASONS AND THE CIVIL RIGHTS MOVEMENT: The Amistad Research Center’s Conversations in Color series will kick off Feb. 24, 12:30-2 p.m., with a discussion between Kathe Hambrick, ARC executive director, and Ralph Slaughter, Most Worshipful Grand Master of the Louisiana Prince Hall Masons. Site is the ARC, Tilton Hall, Tulane University Reading Room, 6823 St. Charles Ave. in New Orleans. Free; register online tinyurl.com/ycywpp55.

TENNESSEE WILLIAMS: Alexandrea Weis, the award-winning author, screenwriter, and historian talks about her friendship with Tennessee Williams on Feb. 27, 7 p.m., at the East Bank Regional Library, 4747 W. Napoleon Ave., in Metairie. Co-sponsored by the Tennessee Williams/New Orleans Literary Festival. (504) 838-1100 or www.jefferson.lib.la.us.

AI AND THE FUTURE OF HISTORY: Margeaux Randolph will lead a discussion on leveraging AI to preserve historical documents, images and artifacts and to explore cultural heritage. Randolph is co-founder of Kr8 Ventures software development company. The event is Feb. 28, 5:30-7 p.m., at the ARC, Tilton Hall, Tulane University Reading Room, 6823 St. Charles Ave. in New Orleans. Free; register online at tinyurl.com/d6cpjejm.

BOOKS

 

BOOK ONE NEW ORLEANS: Mona Lisa Saloy, author of “Black Creole Chronicles,” will launch 2024 programming with a reading from her book on Feb. 22 at 6 p.m. in Room 407 of the Earl K. Long Library at UNO, 2000 Lakeshore Drive in New Orleans. onebookonenola.org

THE GUILD OF WIZARDRY & WHIMSY: The monthly fantasy book club will meet March 5 at Blue Cypress Books, 8123 Oak St. in New Orleans.  at 6:30-8:30 p.m. www.bluecypressbooks.com.

“THE COUNTERFEIT COUNTESS”: Author Elizabeth White and radio host Peter Ricchiuti will discuss her latest book, “The Counterfeit Countess: The Jewish Woman Who Rescued Thousands of Poles During the Holocaust,” on Feb. 21 at 6 p.m. at Blue Cypress Books, 8123 Oak St. in New Orleans. www.bluecypressbooks.com.

“THE AMERICAN DAUGHTERS”: Author Maurice Carlos Ruffin will discuss his newest novel and sign copies on Feb. 27, 6 p.m., at Baldwin & Co. Bookstore, 1030 Elysian Fields Ave. in New Orleans. Tickets for the event start at $32.50 through Eventbrite and include a copy of the book. www.baldwinandcobooks.com.

“TENNESEE WILLIAMS 101”: Author Augustin J. Correro will discuss his book Feb. 28 at 7 p.m., at the East Bank Regional Library, 4747 W. Napoleon Ave., in Metairie. Co-sponsored by the Tennessee Williams/New Orleans Literary Festival. (504) 838-1100 or www.jefferson.lib.la.us.

“FIRST LIE WINS”: Author Ashley Elston will discuss her book and its adaptation with Oscar-winning actress Octavia Spencer on Feb. 29, 6 p.m., at Garden District Book Shop, 2727 Prytania St. in New Orleans. RSVP encouraged. www.gardendistrictbookshop.com.

SCHOLARSHIPS

SBVFC SCHOLARSHIPS: The St. Bernard Chapter of the Louisiana Volunteers for Family and Community is accepting applications for its scholarship program through March 31. Four $1,000 scholarships will be awarded for the fall 2024 school year. A graduating senior attending any metro New Orleans high school, who is a resident of St. Bernard Parish and a U.S. citizen, is eligible. heartsy1@aol.com.

FUNDRAISERS/GALAS 

LARK IN THE PARK: City Park Conservancy’s fundraiser will be held March 8, 7-11 p.m., at the New Orleans Botanical Garden + Pavilion of the Two Sisters, 1 Victory Ave. in New Orleans. It features live music, food and specialty cocktails. VIP preview party at 7 p.m.; gala at 8 p.m. with music by Raw Deal. General admission tickets are $100, with 35 and under tickets $75. one.bidpal.net/lark/welcome

ST. BERNARD SPORTS HALL OF FAME: The induction and awards ceremony will be held March 9, 7 p.m., at the Frederick J. Sigur Civic Center, 8246 W. Judge Perez Drive in Chalmette. Guest speaker will be DD Breaux, former LSU women’s gymnastics coach. Tickets are $60 at shorturl.at/cruw5. Info at stbernardhalloffame@gmail.com.

WINE FETE: The fundraiser benefiting the Hermann-Grima + Gallier historic houses will be held March 22 in the French Quarter at Hermann-Grima House Courtyard, 820 St. Louis St. in New Orleans. The patron party is 6-7 p.m., and the main event is 7-10 p.m., with wine, live music, food, specialty cocktails and a silent auction. Tickets start at $125. hgghh.org.

CLASSES

TOUR GUIDE CLASS: Applications are being accepted for the Friends of the Cabildo Walking Tour Guide Class, set to begin Feb. 26. The 100-hour course on New Orleans history, public speaking skills, and the mechanics of leading a walking tour will train volunteer tour guides to staff FOC French Quarter walking tours. The four-week class meets 8:30 a.m.-3:30 p.m. on Mondays, Wednesdays, and Fridays. The cost of the course is $250. (504) 523-3939 or barbara@friendsofthecabildo.org.

AARP SMART DRIVER CLASS: The class will be Feb. 21, 5-9 p.m., at the Ochsner/Elmwood Fitness Center, 1200 S. Clearview Parkway in Harahan. This class is open to all age 50 and older. Those completing it will receive a certificate that may qualify them for a discount from their automobile insurer. Cost is $20 for AARP members, $25 nonmembers. (504) 828-3962.

MEETINGS

NARFE: The Vernon L. Landry Chapter 1398 of the National Active and Retired Federal Employees will hold its monthly luncheon March 13, beginning at 11 a.m., in the Sicilian Room at Rocky and Carlo’s Restaurant & Bar, 613 W. St. Bernard Highway in Chalmette. All active and retired federal and postal employees are invited. pamela.e.marks1953@gmail.com.

 

Originally Appeared Here

Make the Right Choice

The Internal Revenue Service today reminds taxpayers that carefully choosing a tax professional to prepare a tax return is vital to ensuring that their personal and financial information is safe, secure, and treated with care.

Most tax-return preparers provide honest, high-quality service. But some may cause harm through fraud, identity theft, and other scams. It is important for taxpayers to understand who they’re choosing and what important questions to ask when hiring an individual or firm to prepare their tax return.

Another reason to choose a tax preparer carefully is because taxpayers are ultimately legally responsible for all the information on their income tax return, regardless of who prepares it.

The IRS has put together a directory of federal tax-return preparers with credentials and select qualifications (irs.treasury.gov/rpo/rpo.jsf) to help individuals find a tax pro that meets high standards. There is also a page at irs.gov for choosing a tax professional that can help guide taxpayers in making a good choice, including selecting someone affiliated with a recognized national tax association. There are different kinds of tax professionals, and a taxpayer’s needs will help determine which kind of preparer is best for them.

 

Red Flags to Watch Out For

There are warning signs that can help steer taxpayers away from unscrupulous tax-return preparers. For instance, not signing a tax return is a red flag that a paid preparer is likely not to be trusted. They may be looking to make a quick profit by promising a big refund or charging fees based on the size of the refund.

These unscrupulous ‘ghost’ preparers often print the return and have the taxpayer sign and mail it to the IRS. For electronically filed returns, a ghost preparer will prepare the tax return but refuse to digitally sign it as the paid preparer. Taxpayers should avoid this type of unethical preparer.

In addition, taxpayers should always choose a tax professional with a valid preparer tax identification number (PTIN). By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a valid PTIN. Paid preparers must sign and include their PTIN on any tax return they prepare.

 

Other Tips

Here are a few other tips to consider when choosing a tax return preparer:

• Look for a preparer who’s available year-round. If questions come up about a tax return, taxpayers may need to contact the preparer after the filing season is over.

• Review the preparer’s history. Check the Better Business Bureau website for information about the preparer. Look for disciplinary actions and the license status for credentialed preparers. For CPAs, check the State Board of Accountancy’s website, and for attorneys, check with the State Bar Assoc. For enrolled agents, go to irs.gov and search for ‘verify enrolled agent status’ or check the IRS Directory of Federal Tax Return Preparers.

• Ask about service fees. Taxpayers should avoid tax-return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of the refund into their own financial accounts. Be wary of tax-return preparers who claim they can get larger refunds than their competitors.

• Find an authorized IRS e-file provider. They are qualified to prepare, transmit, and process electronically filed returns. The IRS issues most refunds in fewer than 21 days for taxpayers who file electronically and choose direct deposit.

• Provide records and receipts. Good preparers ask to see these documents. They’ll also ask questions to determine the client’s total income, deductions, tax credits, and other items. Do not hire a preparer who e-files a tax return using a pay stub instead of a Form W-2. This is against IRS e-file rules.

• Understand the preparer’s credentials and qualifications. Attorneys, CPAs, and enrolled agents can represent any client before the IRS in any situation. Annual Filing Season Program participants may represent taxpayers in limited situations if they prepared and signed the tax return.

• Never sign a blank or incomplete return. Taxpayers are responsible for filing a complete and correct tax return.

• Review the tax return before signing it. Be sure to ask questions if something is not clear or appears inaccurate. Any refund should go directly to the taxpayer — not into the preparer’s bank account. Review the routing and bank-account numbers on the completed return and make sure they are accurate.

• Taxpayers can report preparer misconduct to the IRS using Form 14157, Complaint: Tax Return Preparer (www.irs.gov/pub/irs-pdf/f14157.pdf). If a taxpayer suspects a tax-return preparer filed or changed their tax return without their consent, they should file Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit (www.irs.gov/pub/irs-pdf/f14157a.pdf).

 

Extended Hours

In addition to this advice, the IRS also announced nearly 250 IRS Taxpayer Assistance Centers around the country will extend their weekly office hours to give taxpayers additional time to get the help they need during the filing season. The extended office hours will continue through Tuesday, April 16.

The Springfield office, located at 1550 Main St., offers extended hours on Tuesdays and Thursdays. For questions about available services or hours of operation, call (413) 788-0284.

The expanded hours at the assistance centers reflect funding and staffing made possible under the Inflation Reduction Act, which is being used across the IRS to improve taxpayer service, add new technology and tools, as well as help tax-compliance efforts.

“This is another example of how additional IRS resources are helping taxpayers across the country,” IRS Commissioner Danny Werfel said. “Adding extra hours provide more options for hardworking taxpayers to get help with their tax issues. The IRS is continuing to work hard both during the upcoming tax season and throughout the year to find ways to make it easier for people to interact with us.”

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Originally Appeared Here

Stuart Wallace/Shutterstock / Stuart Wallace/Shutterstock

When 2025 draws to a close, so will many of the sweeping Trump-era GOP tax breaks established by the Tax Cuts and Jobs Act (TCJA) of 2017. While the legislation made some tax cuts to corporate profit permanent, lowered individual tax rates will expire on Dec. 31, 2025, and will revert to pre-TCJA levels.

See: This Is the One Type of Debt That ‘Terrifies’ Dave Ramsey
More: 6 Genius Things All Wealthy People Do With Their Money

Largely dependent on which party ends up running the White House and Congress after Inauguration Day 2025, changes to the tax code are coming. Whether cuts can be kept by Republicans, rates rewritten by Democrats or a divided government will agree on some sort of bipartisan compromise, taxpayers of every political persuasion will be affected.

In an editorial on RealClearPolitics, Julio Gonzalez, CEO and Founder of Engineered Tax Services, Inc., warns of a “harsh reality” facing Congress.

“We are in a situation in which many American families and businesses are hanging on by a thread. Letting the non-permanent provisions of the TCJA expire could be catastrophic to our overall economy and the well-being of many working families,” stated Gonzalez.

The TCJA spawned a bunch of changes to the tax code, but here are three key tax adjustments that you’ll need to consider before they turn back at the end of 2025.

Income Tax Rates

Although it kept seven income brackets, the TCJA lowered tax rates across the board and restructured bracket spans, making them more agreeable under the TCJA. With the exception of those who were at 10% (those making $11,000 or less) and 35% (those earning $231,251 to $578,125) tax rate levels prior to 2018, all income tax rates decreased when the new laws came into effect.

The top individual tax rate dropped from 39.6% to 37% under the terms of the Tax Cuts and Jobs Act (single filers making $578,126 and over), the 33% bracket fell to 32% ($182,101-$231,250), the 28% bracket to 24% ($95,376-$182,100), the 25% bracket to 22% ($44,726-$95,375) and the 15% bracket to 12% ($11,001-$44,725).

Story continues

These bracket backslides will mean that every American will need to reassess their spending and tax returns to pay 1% to 4% more in personal taxes unless provisions are extended, revised or made permanent over the next 28 months.

Standard Deduction

Under the Tax Cuts and Jobs Act for the tax years beginning after December 31, 2017, and before January 1, 2026, the standard deduction was nearly doubled for all filing statuses. This led to fewer people itemizing deductions and instead opting for the standard deduction.

The TCJA significantly changed the standard deduction amounts for individuals and families. The standard deductions before the 2017 Tax Year were $6,350 for single filers, $9,350 for heads of household and $12,700 for those married filing jointly.

After the TCJA (2018-2025 tax years), these amounts jumped dramatically. The standard deductions for the 2023 tax year are $13,850 for those single or married filing separately, $27,700 for those married filing separately and surviving spouses and $20,800 for heads of household.

This change aimed to simplify the tax filing process for many individuals and families (Forbes estimates that 90% of taxpayers choose to claim the standard deduction). Claiming the standard deduction made it possible for many to skip the complicated process of itemizing deductions and potentially reduce taxable income.

Estate Tax Exemptions

American taxpayers with considerable estates benefit from larger exemptions, and because this tax can have a significant effect on your beneficiaries, it’s best to plan ahead for it in your estate plan if you think your estate may trigger it.

Discover: Top 7 Countries with Zero Income Tax
Also: IRS Increases Gift and Estate Tax Exempt Limits — Here’s How Much You Can Give Without Paying

The TCJA doubled the estate and gift tax exemption for individuals, from $5.49 million in 2017 to $11.18 million in 2018. Adjusted for inflation, the exemption was $12.06 million in 2022 and it increased to $12.92 million in 2023. This means that an individual can now pass on up to $12.92 million in assets without being subject to federal estate or gift taxes. For married couples, this effectively allows a combined exemption of $25.84 million.

More From GOBankingRates

This article originally appeared on GOBankingRates.com: Trump Era Tax Cuts Are Set To Expire — Here’s How Much More You’ll Pay

Originally Appeared Here

Tax season officially began on Jan. 29, 2024, when the IRS began accepting federal income tax returns for tax year 2023. 

In 2023, the agency processed more than 163 million returns and issued more than 105 million refunds. (The average refund amount? Close to $3,200.) 

While many people wait until closer to the filing deadline to send in their returns, it’s always a good idea to get your paperwork together early in case there are any issues.

Here are the dates you need to know for tax season 2024, including federal and state filing deadlines, as well as when you can expect your refund. 

The deadline for most taxpayers to file a federal tax return is Monday, April 15, 2024.

Because of the observances of Patriot’s Day (April 15) and Emancipation Day (April 16), taxpayers living in Maine and Massachusetts have until Wednesday, April 17, 2024, to file. 

Many parts of the U.S. have been impacted by severe weather: Residents and businesses in parts of Connecticut, Maine, Rhode Island and West Virginia that have been declared disaster areas by the Federal Emergency Management Agency (FEMA) have until June 17, 2024, to file their federal returns.

A full list of federally designated disaster sites is available on the FEMA website.

For the most part, state taxes are also due on April 15, 2024.

The following states have different deadlines:

• Massachusetts: April 17, 2024
• Maine: April 17, 2024
• Hawaii: April 22, 2024
• New Mexico: April 30, 2024 (only for e-returns)
• Oklahoma: April 20, 2024 (only for e-returns)
• Delaware: April 30, 2024
• Iowa: April 30, 2024
• Virginia: May 1, 2024
• Louisiana: May 15, 2024

Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming do not collect income taxes.

For the most current information, consult with your state’s Department of Revenue.

If you filed your federal return electronically and are due a refund, the IRS says you can generally expect it within 21 days. (Enrolling in direct deposit will help you get your money faster, too.)

If there is an issue with your return or if you filed a paper return, it may take longer.

One of the easiest and fastest ways to get your refund is with an online tax-filing program: TurboTax’s basic edition accepts Form 1040 and limited tax credits, and the company claims 37% of filers are eligible to use it for free.

If you need to itemize your deductions, you can pay for TurboTax Deluxe Online for federal returns and state filing. It will also crosscheck over 350 deductions and credits to see if you qualify.

TurboTax

• Cost

  Costs may vary depending on the plan selected – click “Learn More” for details

• Free version

• Mobile app

• Live support

  Available with some pricing and filing options

Click here for TurboTax offer details and disclosures. Terms apply.

H&R Block’s free online edition is also suited for simple returns, though it will process unemployment compensation and retirement income. If you need to itemize your deductions or report self-employment taxes, you’ll want the paid deluxe edition, which comes with help from both live experts and H&R Block’s AI tax assistant.

A Refund Advance Loan from H&R Block can make up to $3,500 available the same day you file, with no loan fees or interest. 

H&R Block

• Cost

  Costs may vary depending on the plan selected (Free Online, Deluxe, Premium, or Self-Employed) – click “Learn More” for details

• Free version

  Yes (for simple returns only)

• Mobile app

• Live support

  Available with some pricing and filing options

The deadline to file a tax extension is April 15, 2024. You will then have until Oct. 15, 2024, to file your return but, you still need to make an estimated payment on April 15. According to the IRS, “an extension of time to file your return does not grant you any extension of time to pay your taxes.” 

To request an extension, you can submit an online or paper version of IRS Form 4868. You can also submit some or all of the money you owe and indicate it’s for an extension.

Each state has its own process for requesting a tax extension. Many, including California and Illinois, offer an automatic six-month extension for their state returns.

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The deadline for most taxpayers to file federal and state income taxes is April 15, 2024. although there are some exceptions. If you are expecting to receive a refund and file electronically, your money should arrive within 21 days.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every tax article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of tax products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

Catch up on CNBC Select’s in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

Originally Appeared Here

In 2021, Americans owed about $625 billion in taxes that they never paid. This number, called the “tax gap,” represented some 13.7 percent of all taxes due, and, had it been collected, it would have reduced the deficit by nearly one-quarter.

Getting more of that number collected is naturally an obsession of many tax and budget experts. It represents a way to fund government programs without raising taxes, adding to the deficit, or making other cuts. Deals like that can feel as rare as unicorns in the tax world. Funding the IRS in an effort to reduce the tax gap was one of the key ways Democrats funded their climate subsidies in the Inflation Reduction Act (IRA) of 2022.

The question is what share of that $625 billion could be realistically recovered. Even a perfectly resourced Internal Revenue Service would, after all, miss some tax evasion and misreporting. The Congressional Budget Office estimated that the IRS funding in the IRA would raise an average of $20.3 billion a year over 10 years, a small fraction of the $625 billion gap. For years, though, some economists have been vocally arguing that better enforcement could raise much, much more than that.

A new report released by the Treasury Department on Tuesday argues that those economists had a point, that we have been understating the revenue this new IRS funding will bring in. They argue that it will bring in over $170 billion more than they previously thought over an 11-year window and that, if Congress extends this funding for the IRS, the ultimate revenue gain could be more than double initial estimates.

The takeaway is that investing in the IRS could, if this study is accurate, be a better deal than we thought.

Why Treasury thinks it underestimated revenue from IRS funding

The increased revenue projected comes from a few different sources. One of the biggest is that Treasury is finding that marginal audits in recent years have been bringing in more money than anticipated. They had assumed that additional audits would bring in less and less revenue, on the grounds that the most profitable audits are already taking place — the low-hanging fruit has been plucked, in other words.

But the new report argues this isn’t as true as they had assumed. Recent IRS examinations, it writes, have shown “much greater revenue potential than is reflected in previous estimates of the impact of marginal work.”

The report also incorporates money the IRS anticipates getting due to “specific deterrence.” That’s a fancy term for a simple idea: If you audit a taxpayer in one year, they are less likely to hide income from the IRS in the next few years because now they are more worried about getting caught. This finding is based on a study released last year by economists Will Boning, Nathaniel Hendren, Ben Sprung-Keyser, and Ellen Stuart. While Boning is at the Treasury Department, the rest are independent academic researchers. The academic paper estimated the “returns” on spending on IRS audits: How much money does $1 spent on audits yield in new revenue?

The finding was that this spending pays for itself many times over and that the return is higher the wealthier the audited person is. Audits of low-income taxpayers bring in $5 for each $1 spent, while audits of high-income taxpayers bring in $12 per $1 spent. Much of that return, they find, comes from deterrence causing audited individuals to report more money in ensuing years. The Treasury paper takes the Boning et al paper’s estimates of increased revenue from deterrence and uses them to adjust upward Treasury’s previous estimates of how much revenue the audits funded by the IRA money will raise directly.

Finally, Treasury assumes that investment in better taxpayer services (like shorter wait times for calls, simpler reporting methods, and nudges/reminders to pay estimated taxes) and in better IT systems will result in still further revenue increases.

Prior to this paper, Treasury estimated that over the 11 years from 2024-2034, and if extended past 2029 when the IRA funding is due to run out, a fully funded IRS would bring in $390.3 billion in revenue directly from audits.

• $497 billion in revenue once you add in the specific deterrence and greater efficiency effects
• $851 billion once you include better IT and taxpayer services.

That final number is more than double the initial $390.3 billion estimate.

Should we believe this?

The methodology of the Treasury report is straightforward, and the Boning et al. research is from very respected, careful researchers who I find credible. But it’s always worth being a little skeptical of releases like this. For one thing, the Treasury oversees the IRS, and so is effectively putting out research arguing that it and its subsidiary institutions should get more money. They may very well be right, but they’re hardly a disinterested party.

Secondly, the difference between even the initial $390.3 billion estimate of revenue from Treasury and the CBO’s $203.7 billion estimate gives me a little pause. The difference between the CBO estimate and the massive $851 billion number gives me still more (though, in fairness, the CBO is not modeling the IT and other effects in the Treasury paper). Some of the discrepancy is explained by the former being an 11-year estimate and the latter being a 10-year one; another difference is the CBO estimate starts in 2022, not 2024, so the Treasury number will naturally be a little bigger because of inflation in those two years.

But there’s still a big gap after adjusting for those factors. In latter years, Treasury is projecting much more revenue, even before these new deterrent effects, than CBO did. In 2031, for instance, CBO estimates $35.3 billion in new revenue from the IRS funding, while Treasury’s prior estimate was $57.1 billion, before all the increases it’s implementing now. The baseline Treasury estimate that year being over 60 percent higher than that of Congress’s impartial budget arbiter raises some red flags for me. A Treasury official explained that the CBO assumes lower returns on audits than Treasury has, and that this disagreement predates the new report. But that still doesn’t mean Treasury has the correct side of that argument.

All that said, the core idea of the report — that deterrence effects mean that increased numbers of audits could greatly increase revenue from funding the IRS — seems sound. It’s particularly relevant because the cost of the clean energy subsidies in the Inflation Reduction Act appears to be much higher than estimated when the bill was based: about 65 percent higher, per the Joint Committee on Taxation (JCT, the CBO’s partner that estimates tax provisions).

That’s largely due to more people and businesses wanting to invest in clean energy than initially estimated. For instance, the JCT has increased its estimate of what the US will spend subsidizing electric cars by more than fivefold because of surging demand for the cars. If you like these subsidies, this is a good thing: They’re doing their job and driving demand up.

But it raises the question of whether these provisions will actually be paid for by the revenue provisions of the Inflation Reduction Act. The new Treasury report is, in effect, an argument that the IRS funding could be up to the challenge of paying for all this unexpected clean energy spending.

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Dear Savvy Senior,
What are the IRS income tax filing requirements for retirees this tax season? I didn’t file a tax return the past two years because my income was below the filing threshold, but I got a part-time job late last year, so I’m wondering if I’m required to file this year.
Retired Worker  

Dear Retired,

Whether or not you are required to file a federal income tax return this year will depend on how much you earned last year (in 2023), as well as the source of the income, your age and filing status.

Here’s a rundown of this tax season’s IRS tax filing requirement thresholds.

For most people, this is pretty straightforward. If your 2023 gross income – which includes all taxable income, not counting your Social Security benefits, unless you are married and filing separately – was below the threshold for your filing status and age, you probably won’t have to file. But if it’s over, you will.

• Single: $13,850 ($15,700 if you’re 65 or older by Jan. 1, 2023).
• Married filing jointly: $27,700 ($29,200 if you or your spouse is 65 or older; or $30,700 if you’re both over 65).
• Married filing separately: $5 at any age.
• Head of household: $20,800 ($22,650 if 65 or older).
• Qualifying surviving spouse: $27,700 ($29,200 if 65 or older).

To get a detailed breakdown on federal filing requirements, along with information on taxable and nontaxable income, call the IRS at (800) 829-3676 and ask them to mail you a free copy of the “1040 and 1040-SR Instructions for Tax Year 2023,” or you can see it online at IRS.gov/pub/irs-pdf/i1040gi.pdf.

Check Here Too

Be aware that there are other financial situations that can require you to file a tax return, even if your gross income falls below the IRS filing requirements. For example, if you earned more than $400 from self-employment in 2023, owe any taxes on an IRA, Health Savings Account or an alternative minimum tax, or get premium tax credits because you, your spouse or a dependent is enrolled in a Health Insurance Marketplace plan, you’ll need to file.

You’ll also need to file if you’re receiving Social Security benefits, and one-half of your benefits plus your other gross income and any tax-exempt interest exceeds $25,000, or $32,000 if you’re married and filing jointly.

To figure all this out, the IRS offers an online tax tool that asks a series of questions that will help you determine if you’re required to file, or if you should file because you’re due a refund. It takes less than 15 minutes to complete.

You can access this tool at IRS.gov/Help/ITA – click on “Do I Need to File a Tax Return?”  Or, you can get assistance over the phone by calling the IRS helpline at (800) 829-1040.

Check Your State

Even if you’re not required to file a federal tax return this year, don’t assume that you’re also excused from filing state income taxes. The rules for your state might be very different. Check with your state tax agency before concluding that you’re entirely in the clear. For links to state tax agencies, see Taxadmin.org/fta-members.

Tax Preparation Help

If you find that you do need to file a tax return this year, you can free file through the IRS at IRS.gov/FreeFile if your 2023 adjusted gross income was below $79,000.

Or, if you need some help, contact the Tax Counseling for the Elderly (or TCE) program. Sponsored by the IRS, TCE provides free tax preparation and counseling to middle and low-income taxpayers, age 60 and older. Call (800) 906-9887 or visit IRS.treasury.gov/freetaxprep to locate services near you.

You can also get tax preparation assistance through the AARP Foundation Tax-Aide service. Call (888) 227-7669 or visit AARP.org/findtaxhelp for more information. You don’t have to be an AARP member to use this service.

Send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit SavvySenior.org. Jim Miller is a contributor to the NBC Today show and author of “The Savvy Senior” book.

Originally Appeared Here

As a tax professor, I love taxes: the theory, the policy, even the politics. But I have a confession to make. I hate doing them. My taxes are not complicated. Yet, every year, I spend hour upon hour gathering documents, paying for tax preparation software, entering in my income, and puzzling through the instructions as I try to figure out whether I am eligible for this or that deduction or credit. Every year, I think to myself: There has got to be a better way!

And there could be, so long as politicians got out of the way and let the IRS work directly with the American people. By that, I’m referring to a 2024 pilot program that would allow a large number of taxpayers to file directly with the IRS. It’s a huge deal! But like most things associated with taxes, it is complicated.

Those of us of a certain age remember receiving a thick booklet from the IRS each year filled with forms and instructions. If you needed a rare form not included in the booklet, you had to go down to the post office to see whether they had one. For those who didn’t get to experience this joy, all I can say is: Be skeptical of those promoting the good old days. Some things may be simply too painful to remember.

With the rise of the personal computer, companies like Intuit developed tax preparation software to help people do their own taxes, saving them the need to hire an accountant. The computer would walk you through all the steps, but you still had to print out the returns and mail them in. Don’t forget to attach your W-2 and 1099-Rs! The parties at the post office, as the deadline approached, were epic.

Eventually, as technology advanced, Congress and the IRS figured out that “e-filing” was the future. The information contained in a paper return could be squirted over a modem as a series of 0’s and 1’s, obviating the need to kill trees and race to the post office. The IRS would no longer have to receive and process millions of physical returns. It was a true win-win. But how to get people to file electronically? This is where it gets interesting.

Lizzie O’Leary

TurboTax’s Fight Against Free Tax Filing

Read More

Simply put, the IRS wasn’t up to the task of developing its own free online system, so it joined forces with commercial tax preparation software companies to create a free filing option for those with income under a certain amount (in 2022, $73,000). In return for the companies agreeing to provide free filing for around 60 percent of all taxpayers, the IRS agreed not to develop its own product. The program has been modified over the years, but it is currently on its last legs. Even at its peak in 2005, only 6.4 percent of eligible taxpayers took advantage of the program. Over the past few years, Intuit and H&R Block, which handled 70 percent of the free-filing volume, have withdrawn from it entirely. Suffice it to say, this effort has failed.

We won’t discuss the issues with tax preparation companies diverting customers who could have filed for free to fee-paying services, except to say that such abuses led to changes in the program that now allow the IRS to develop its own direct-file program. The Inflation Reduction Act, passed in 2022, included funds for the IRS to study the question, and the IRS issued a long-awaited report in May. The report determined that taxpayers are interested in an IRS-developed filing option, but it acknowledged uncertainties regarding the costs and how many people would actually decide to use it.

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The net result is a pilot project for the 2024 filing season (the 2023 tax year) that will be rolling out in 12 states, eight of which have no state income tax (Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) and four of which that do (Arizona, California, Massachusetts, and New York). Not everyone in those states will be eligible to participate in the pilot, but the IRS estimates that up to 20 million taxpayers are eligible. The ultimate goal would be expand the number of eligible taxpayers and to integrate federal and state filing into a simple, one-stop website.

It should come as no surprise that tax prep companies view this as a threat to their business model. Nor should it surprise anyone that they are taking steps to undermine the effort, ranging from deploying lobbyists in D.C. to insinuating through well-placed op-eds that a government-sponsored direct-file option will hurt the very people it was designed to help, particularly in diverse communities. I would not be surprised to discover that the tax prep companies were behind recent Republican efforts to cut IRS funding.

Doing your taxes will never be fun, but it could be cheaper and easier. If you live in one of the states participating in the pilot, I encourage you to check out the direct-file option to see whether you can participate. If the tax prep companies can build a better mousetrap that people are willing to pay for, God bless them. But we have an opportunity to help government work better for all of us. Let’s not pass it up.

Originally Appeared Here

A recent report named Minnesota’s tax code the most progressive in the U.S., meaning that Minnesota’s state and local tax system does more to reduce income inequality than that of any other state in the country.

The upshot of the new report — “Who Pays?”  from the left-leaning Institute on Taxation and Economic Policy — is that low-income Minnesotans pay less in taxes (including income, sales, property, and excise taxes) than their counterparts in most other states, while high earners pay more. But because most states have steeply regressive tax codes — meaning lower earners pay a larger share of their income than the rich — the reality is that Minnesota state and local effective tax rates (total taxes divided by income) are fairly flat across income groups, especially outside of the lowest 20%. The chart below shows effective tax rates for Minnesota, South Dakota and Wisconsin for each income quintile, with the highest 20% broken out into subgroups.

South Dakota and Wisconsin’s effective tax rates for lower-income households are similar to Minnesota’s middle-income rates, but fall steeply at the top. This is the hallmark of a regressive tax code, and the same holds true for other low-tax states like Florida and Texas. 

For Minnesota, the ranking of most progressive tax code is an achievement several decades in the making, resulting from policies like a graduated income tax as well as a number of credit and refund programs targeted at lower-income households. Most recently, a new child tax credit and a surtax on investment income of very high earners — combined with corporate tax cuts in other states — vaulted Minnesota to the top spot. 

The ranking was lauded by economic fairness advocates both here and across the country, who praised Minnesota for reducing inequality by ensuring the rich pay a larger share of their income in taxes than the poor. They are right to celebrate: A progressive tax code follows the egalitarian values of the Minnesota Miracle; it helps those in need, and it asks more from those whom society has benefited most. Those are all good things that Minnesotans should be proud of.

But when it comes to taxes, there is danger in focusing too much on the question of “who pays?” over “what do they pay for?” 

Once raised, state and local tax dollars fund an enormous and often under-appreciated range of public investments that support our daily lives, shape the character of our communities, and set the fundamental terms of our social contract. This encompasses not just the public programs we have now, but the things that we might want in the future. 

For example, Evan Ramstad recently published an excellent column in the Star Tribune  discussing America’s shameful under-investment in child care compared to European countries. As Ramstad points out, these sorts of investments are could be established here. But they require a different conversation around taxes.

Namely: Taxes are good. They pay for things that benefit us all, and so it’s right that everyone contribute. Taxes can fund basic necessities like affordable child care, health care, college, and greater housing supply, as well as quality-of-life amenities like parks, libraries and the arts. 

These are inherently public goods that we can neither afford to buy as individuals, nor effectively distribute through private markets. Case in point: the overpriced, understaffed child care system described in Ramstad’s column and many other places. As Ramstad points out, solutions to these problems exist in other places and they are attainable here. But it requires a more tax-positive approach.

Asking Minnesotans to embrace higher taxes will be no small feat, but it is especially necessary in the United States, which raises and spends less money on public goods and services than any other developed nation of comparable wealth. 

Measured as a share of total economic output, U.S. taxes are about 20% lower than the OECD average, and 35% lower than countries like Sweden, Finland, and Denmark, which are renowned for low levels of poverty and crime, excellent health outcomes, and a generally high quality of life.

For Americans, the lack of public investment means higher out-of-pocket costs for health care, child care and college. More broadly, the fragile social safety net means a more precarious life, without the guarantee of income support, basic housing, or medical care in the event of calamity. These would seem like far more pressing (and politically inspiring) questions than whether a middle-earner spends 8.6% (the South Dakota average), 10% (the Minnesota average), or 10.5% (the U.S. average) on state and local taxes.

Right now, many national tax policy advocates are focused on tax fairness and the idea that only “the rich” should pay for additional public spending. This is understandable given current levels of inequality. But an overwhelming progressivity may come at the expense of the revenues we could raise to fund collective investments in a better society.

Minnesota has long carved its own path to becoming the state that works, with the strongest economy in the region and some of the highest quality of life in the country. Our policymakers should continue looking for opportunities to build on that success by easing barriers to attaining life’s basic necessities.

Relying too much on progressive taxation will greatly limit the state’s funding options, given that 13 out of 15 state tax revenue sources are considered regressive by the technical definition. Higher incomes are also more volatile, which is a problem for states that need to balance every budget. And, although its effects are often overstated, there is also the perennial threat of rich taxpayers leaving. 

That’s not to say that Minnesota shouldn’t raise taxes on the rich. But it would be a mistake to accept progressivity as the litmus test of a worthwhile revenue source.

For decades, Minnesota has been a pioneer in funding a more just society. Now that we have the most progressive tax code in the country, the fiscal conversation in Minnesota should pivot to: “What can we get for it?”

Originally Appeared Here