Starting July 1, 2026, if you have a newborn from 2025-2028, that baby gets $1,000 in a Trump account free from the Government. It grows tax deferred and at age 18 its turns into a traditional IRA, if the child doesn’t take it out. You or the grandparents can contribute up to another $5,000 per year to the account. This is a great way to grow money for your children in the future.
Even if you don’t have a newborn, but have a child under 18, you can still open the account and donate up to $5,000 per year. Even that onetime give will grow without tax.
You are limited to specific mutual funds for investments which the Treasury Department designates. So despite the name, this is a good deal for your children. Use it.
No tax Deadlines from January 20, 2020-July 10, 2023
The US Court of Federal Claims ruled that due to COVID pronouncements in conjunction with Section 7508A of the Internal Revenue Code which deals with tolling statutes during disasters. President Trump’s declaration for COVID was made January 20, 2020 and was not removed until done so by President Biden on May 11, 2023. Add 60 days to it and you have July 10, 2023 as the operative date for filing any return during that period. The IRS has not and probably will not acquiesce to this decision. However, if you have a client being audited for 2019-2022 years or paid those taxes late, they might get a break from this decision. You can state that the interest for that period 1/20/20-7/10/23 is unagreed and any penalties are not assessable if accruing during that period of time.
Income in Respect of a Decedent
When a decedent enters into a contract prior to his death, and it settles after his death, there is no step-up in basis. It is considered income in respect of a decedent. In such a case, the old basis is used and decedent’s estate or heirs pay the capital gains tax.
What are some of the solutions? 1. The Buyer defaults on the contract, the decedent’s family keeps the deposit, and a new contract is entered into. In such a case, the old contract is dead and a new contract with a stepped up basis is done. And to make matters worse, the contract is an assets of the estate and will bear estate taxes (if decedent’s estate is worth more than the exemption equivalent for estate taxes). So, this is a huge problem.
Let’s say, family enters into a binding contract whereby they sell a portion of decedent’s closely held corporation prior to his death to New and give New an option to purchase the rest after the death of the decedent. This would cause income in respect of a decedent and if Decedent was over the exemption equivalent there would be an estate tax as well.
Back-up Withholding
So, you’re a contractor and you hire a bunch of contractors. You need to get W-9’s from them with their social security numbers or EIN’s. So, you do that, but let’s say, they give you false numbers. When you file their 1099’s, the IRS may contact you saying that you need to back-up withhold 24% from their gross payments.
DON’T IGNORE THAT LETTER. Failure to do that incurs liability for your company to the extent of the back-up withholding. Now if you’re lucky, the offending contractor actually paid their taxes and reported the income. If so, then you have a defense that the IRS cannot collect a tax twice. But if they didn’t you’re likely to face a pretty big liability.
And if these guys want their 24% back, they can always file a tax return and get it back. Most won’t, because 24% is less than what they really owe.
President Biden’s Tax Proposals
President Biden’s tax plan was unveiled on March 9, 2023. In it there were some DOA proposals.
Income Taxes
The budget proposed raising the top personal-income tax rate to 39.6%, from 37%, for Americans earning $400,000 or more. That increase would reverse part of the 2017 Tax Cuts and Jobs Act. This would have the effect of having more taxpayers defer income to avoid hitting the $400,000 per year mark.
Capital gains tax
The President’s plan would raise the federal capital gains tax rate to 39.6% from 20% for households earning more than $1 million. Capital gains rates would not be indexed for inflation on this proposal, thus creating a double whammy for taxpayers in this category. So, if you sell a property that you’ve held in the family for 50 years for a Million Dollars, your rate jumps 19.6%. You’ll see a lot of price manipulation to get around this one including installment sales.
Wealthier investors are also subject to an additional 3.8% tax on long- and short-term capital gains (and other investment income including interest and dividends) that is used to fund ObamaCare. Short-term capital gains on assets sold within a year are typically taxed as ordinary income. Biden also called for increasing the 3.8% ObamaCare tax to 5% for those earning at least $400,000 in an effort to shore up Medicare.
Under the proposal, taxpayers could face a federal rate as high as 44.6% when they sell stocks, properties and other assets and it drives their incomes above $1 Million.
New minimum tax for “Billionaires” (really $100 Millionaires).
The president’s plan calls for a 25% minimum tax rate U.S. households worth more than $100 million. This would seem to call for anyone near $100 Million to have to report the value of their assets annually. A huge undertaking which will make accountants and actuaries very happy.
Corporate stock buyback tax
The President called for quadrupling the 1% levy on corporate stock buybacks that was added to the tax code last year as part of the Inflation Reduction Act. His proposal would increase the tax from 1% to 4% and would allegedly reduce the differential tax treatment between share repurchases and dividends. But given the suggested increase in the Capital gains rates, it actually doesn’t accomplish that and dividends may be more palatable which of course impacts the middle class.
Increase in Corporate tax rates
The President’s proposal would lift the corporate tax rate to 28% from 21%, rolling back a key part of the 2017 tax law changes. The measure also calls to increase taxes U.S. companies owe on their foreign earnings to 21% — nearly double the current 10.5% rate. This could cause divestment of foreign companies by US Companies or spin-offs.