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Thanksgiving is one of my favorite holidays. I am one of *those* hosts–I cook a zillion dishes and welcome as many guests as we can fit through the door (including international students from our local university who don’t have the opportunity to go home during fall break—if you have a spare chair at your table, I highly recommend it). I’m already looking forward to this coming week.
Thanksgiving conversations can be tricky, especially in an election year. You might be tempted to skew towards the weather (it’s snowing in Pennsylvania), pop culture (The Wicked and Gladiator II movies are out), or sports (though, as a Sixers fan, this just makes me sad).
But what about tax? Hear me out.
Tax can be political (remember reconciliation? (☆)), but it can also be fascinating.
For example, did you know that Detroit has announced it will become the largest municipality in the U.S. to allow residents to pay taxes using cryptocurrency? The city will roll out a new PayPal-managed payment platform in 2025.
Or that overseas Americans are entitled to certain tax breaks like the ability to exclude from tax amounts provided by an employer for foreign housing? (This could be an excellent segue into why you really need to move to Paris or the Maldives.)
And over cocktails, you could show off your knowledge of Latin by referencing stare decisis—a Latin phrase meaning “to stand by things decided.” Lawyers love to use Latin, and recently, the U.S. Tax Court relied on the notion of stare decisis to rule on a tax case (Mukhi) based on a prior case (Farhy). When Farhy was overturned in a D.C. District Court, Mukhi ended up in Court again. This time, the Tax Court affirmed its earlier decision (☆) that the IRS lacks authority to assess certain foreign information penalties.
If cocktails aren’t your style, you could casually bring up over a few non-alcoholic drinks that earlier this year, after a U.S. Tax Court judge ruled against it in a transfer pricing case, Coca-Cola said it would pay $6 billion in taxes and accrued interest (☆)—and appeal the decision. The IRS claims that from 2007 to 2009, the company underreported income from the foreign licensing of manufacturing, distribution, sale, marketing, and promotion of its products in overseas markets. The case has been in litigation for years.
And, of course, tax is bigger than the U.S. In a recent episode of Tax Notes Talk, Professor Afton Titus of the University of Cape Town explains her view on how the tax initiatives of the OECD and United Nations affect developing nations. (Transcript available.)
You can even talk turkey and tax–I’ve included a turkey tax-related tidbit in this week’s newsletter (scroll down to the trivia section).
No matter what you talk about, I hope you have a fantastic holiday. And stay tuned–we have a lot of great year-end tax advice heading your way in the next few weeks. (I know, it’s wild that the end of the year is almost here.)
Enjoy your weekend–and your turkey,
Kelly Phillips Erb (Senior Writer, Tax)
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Taxes From A To Z: Z Is For Zero Percent Rate
Didn’t know that there was a zero percent rate? You’re not alone.
Taxpayers often conflate a zero percent rate with being exempt from tax—it is not the same thing. In some instances, if you are exempt from tax (or a specific kind of tax), you don’t have to file a tax return at all. For example, taxpayers who do not earn enough income during the year to be subject to meet the income requirements for filing a return.
That’s not the same as being taxed at a zero percent rate. In some instances, you may receive income that is taxed at zero percent but is still reportable. A good example is the zero percent tax rate on long-term capital gains. It’s not an exemption—long-term capital gains are taxed at zero percent for taxpayers in the 15% marginal tax rate or below (you can find those numbers for 2024 here). If you are required to file a tax return, those transactions are still reportable even if they are not taxable.
It could also be the case that you are required to file a tax return (for example, you have self-employment income of more than $400) but because of your exemptions and credits, you are ultimately taxed at a zero percent rate. You’ll still need to report that income.
I know what you’re thinking: what’s the worst that could happen if I don’t file when the rate is zero anyway? If you decide not to file a tax return, the statute of limitations never starts running. That means that the IRS could audit you indefinitely. If you do file but opt out of reporting certain transactions, you could extend the statute of limitations.
And, of course, keep in mind that certain tax forms that are sent to the IRS—like Forms 1099-B, which report capital gains—aren’t going to note that you’re taxed at a zero percent rate, they just offer reportable transactions. Don’t give the IRS a reason or more time to look at your returns: report properly even if the result is zero tax.
Questions
This week, a reader asks:
I am retired and don’t understand the required minimum distribution (RMDs) rules. Can you explain when I have to start taking money out of my IRA?
Your required minimum distribution (☆) is the minimum amount you must withdraw from your retirement account each year. You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA or retirement plan account when you reach age 73. For most years, you must withdraw your RMD by December 31.
If you turn 73 this year (2024), you have until April 1 of next year (2025) to take your first RMD. But, pay attention to the deadlines. You will generally have two required distribution dates for that year—an April 1 withdrawal (to make up for the year you turn 72) and an additional withdrawal by December 31. If you want, you can make your first withdrawal by December 31 of the year you turn 73 instead of waiting until April 1 of the following year. This would allow the distributions to be included in your income in separate tax years.
The rules are different for Roth IRAs. Roth IRAs do not have RMDs until after the owner’s death—but a Roth IRA’s beneficiaries are subject to the RMD rules. (For 2024 and later years, RMDs are no longer required from designated Roth accounts.)
Retirement accounts can be tricky. If you have questions, be sure to chat with your tax professional or financial advisor. Making a mistake can be expensive–if you miss an RMD, you may have to pay a 25% penalty on the amount that wasn’t distributed.
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Statistics, Charts, and Maps (Oh My!)
More than 103,223 men, women, and children are currently on the national transplant waiting list. Seventeen of them will die today. And another 17 will die tomorrow. One reason? There aren’t enough organ donors saying yes. A new tax credit (☆) in Michigan aims to change that.
Live donors can donate organs and tissue, including segments of your liver, portions of your lung, pancreas, and intestine, as well as tissue like skin, bone (after knee and hip replacement surgeries), cells, blood, platelets, and bone marrow. You can also donate a kidney—the most commonly donated organ—and the most in demand. About 85% of people waiting for a transplant—nearly 90,000 patients—are waiting for a kidney.
In 2023, more than 6,900 transplants were made possible by live donors. To qualify, live donors should be healthy and at least 18 years of age (in some cases, you may need to be 21). Having access to resources can also be helpful—donations can be expensive. While donors typically don’t have to pay for costs—the organ recipient’s insurance will often cover it—the related costs, including travel, lodging, and lost wages from being out of work, may disincentivize potential donors.
This month, Michigan Gov. Gretchen Whitmer signed House Bill 4361 into law, making live organ donors eligible for a one-time tax credit of up to $10,000 beginning in 2025. The credit is intended to reimburse live donors for related expenses.
The state joins others that offer a tax incentive to donate organs. Here’s a look at those that do:
A Deeper Dive
Our post-election investment guide (☆) offers smart advice for fixed-income investors who worry about inflation and clever options strategies for those lucky enough to have owned stocks like Nvidia. And for those who want to preserve their wealth across generations, we have a story on family offices, which are now no longer the exclusive preserve of the superrich.
If you’ve been holding Nvidia or other “magnificent seven” tech stocks for the past couple years, you might feel a bit like Buffett yourself lately. The Nasdaq 100 has almost doubled since this bull market began two years ago, and got a bump higher in the wake of Donald Trump’s election victory. Many investors are sitting on big gains, pondering whether to stay the course or sell to lock in profits. The question is not a binary one, because you can employ several strategies (☆) that allow you to do both.
If the fiscal theorists are right, the future for holders of the usual kind of bonds, the ones without any inflation protection, is dark, even without any inflationary pressure that might come from increased tariffs. The Committee for a Responsible Federal Budget estimates President-elect Trump’s policies would add $7.8 trillion to the federal debt over a decade. It may be a good time to buy Treasury Inflation Protected Securities or TIPS (☆). TIPS pay a real rate, an interest coupon above and beyond the rise in the cost of living.
In 1882, John D. Rockefeller, the world’s richest man, created the first full-service single-family office in the U.S. to manage and invest his fortune, said to be $1.4 billion ($31 billion in today’s dollars) at his death in 1937. Fast-forward 142 years, and many members of The Forbes 400 have a family office to help them manage their enormous fortunes. But so do thousands of other American families who don’t belong to the billionaire class.
Family offices (☆) are taking off for many reasons, including increasing wealth and aggressive marketing to the ordinary rich. Baby Boomers and their elders also have concerns about passing on their accumulated wealth (in aggregate, some $84 trillion) and have a desire to involve younger generations in philanthropy. And, don’t count out tax savings—the 2017 tax overhaul, coupled with a tax court ruling that year involving the Lender family (of bagel fame), means that investment expenses that are no longer deductible on individual tax returns can often be written off at the family office level.
Want a paper copy? These stories will appear in the December/January issue of Forbes magazines–it’s slated to hit newsstands on December 10, 2024.
Tax Filings And Deadlines
📅 January 1, 2025. Due date for reporting companies created or registered to do business in the United States before January 1, 2024, to file Beneficial Ownership Information (BOI) reports with FinCEN.
📅 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
📅 December 12-14, 2024. ABA Section of Tax, 2024 Criminal Tax Fraud and Tax Controversy Conference, Las Vegas, NV. CLE available. Registration required.
📅 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.
📅 July 21-23, 2025. National Association of Tax Professionals Taxposium 2025, Caesars Palace, Las Vegas. Registration required.
Trivia
The U.S. is the world’s largest turkey producer and the largest exporter of turkey products–we’ve exported 504 million pounds of turkey so far in 2024. Which country buys the most turkey from the U.S., by value?
(A) Canada
(B) China
(C) France
(D) Mexico
Find the answer at the bottom of this newsletter.
Positions And Guidance
The IRS has published Internal Revenue Bulletin 2024-48.
The Public Company Accounting Oversight Board (PCAOB) adopted a set of new requirements regarding public reporting of standardized firm and engagement metrics, as well as a separate but complementary set of amendments regarding the PCAOB framework for collecting information from audit firms.
The ERISA Industry Committee filed amicus briefs in two separate cases affecting large employers. The first case represents a challenge to the practice of “pension risk transfer.” The second case involves an Illinois statute requiring staffing agencies to pay temporary employees who work at a particular site for more than 90 days within a year either “equivalent benefits” as the lowest paid, comparable employee or the hourly cash equivalent.
The ABA Section of Taxation submitted comments to the IRS and Treasury in response to Proposed Regs § 1.6011-18, which would identify certain partnership-related party basis adjustment transactions, and substantially similar transactions, as “transactions of interest” (TOIs) under section 1.6011-4(b) of the Regs. The recommendations are quite broad, so the Section recommends that Treasury withdraw and reissue the current Proposed TOI Regulations with a requirement that reporting would be required only for TOIs entered into on or after the re-proposal occurs.
Noteworthy
Intuit, the global financial technology company that makes Intuit TurboTax, Credit Karma, QuickBooks, and Mailchimp, announced its Q1 FY25 results.
Moore Tax Law Group announced the addition of Lauren A. Darwit to its team of attorneys this week, expanding the boutique tax law firm’s bench of litigators. Darwit’s last position was as a Trial Attorney at DOJ’s Tax Division in Washington, DC.
Ashurst welcomes tax partner Morgan Vail, who joins the Paris office’s tax team. Vail has been advising clients on corporate tax issues for over 15 years. He has particular experience in the new technologies, media, and telecommunications sector, including the taxation of digital activities.
Stradley Ronon has welcomed Richard E. Peterson as a partner in the Chicago office. Peterson joins from Perkins Coie and will continue to focus on sophisticated tax matters involving regulated investment companies, investment funds, and corporate transactions.
The Public Company Accounting Oversight Board (PCAOB) announced settled disciplinary orders sanctioning five audit firms for violating PCAOB rules related to required reporting. The firms are Bush & Associates CPA LLC (Bush), Barton CPA PLLC (Barton), Crowe Hussain Chaudhury & Co. (Crowe), B S R & Co. LLP (KPMG India), and RSM Brasil Auditores Independentes Sociedade Simples (RSM Brazil).
The AICPA & CIMA, which together form the Association of International Certified Professional Accountants, has been recognized by the U.S. Department of Labor’s (DOL) Office of Apprenticeship as an Apprenticeship Ambassador. The Apprenticeship Ambassador Initiative creates a national network of employers, labor organizations, industry associations, program sponsors, educators, workforce intermediaries, minority-serving institutions, community-based organizations, and other stakeholders to serve as champions for expanding and diversifying Registered Apprenticeship.
The Treasury Inspector General for Tax Administration (TIGTA) began a social media campaign to commemorate the agency’s 25th anniversary of providing independent oversight of the IRS and protecting the integrity of tax administration. Congress created the agency as part of the IRS Restructuring and Reform Act of 1998 and it began operations in 1999.
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In Case You Missed It
Here’s what readers clicked through most often last week:
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Trivia Answer
The answer is (D) Mexico.
Mexico is by far the largest export market for U.S. turkey products, capturing well over 60% of the total exports. Canada–the second largest market–receives just 5% of Mexico’s total. China, the Dominican Republic, and Guatemala round out the top five.
According to Turkey Feeds America, companies involved in the production and processing of turkey provide nearly 424,000 jobs that pay $28.0 billion in wages to families throughout the country, generate about $138.7 billion in annual economic impact, and about $11.3 billion in taxes. For a closer look at how the industry creates jobs in your state or congressional district, click here.
Feedback
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