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The headlines were dominated this week by storm coverage. Even as clean-up from Hurricane Helene was going on, Category 5 Hurricane Milton was marching towards Florida. Fortunately, the storm largely spared Tampa and diminished as it made its way across the state. Still, storm surges threaten the coast and forecasts continue to call for heavy rainfall.
We’ve all seen the resilience of those impacted by the recent storms—hashtags like #mountainstrong and #Tampastrong speak to how residents are dedicated to rebuilding. If you want to help but aren’t sure where to start, here are some tax-exempt charities that have indicated they are accepting Milton-specific donations.
Help is also available for taxpayers. Last week, the IRS announced tax relief (☆) for individuals and businesses affected by Hurricane Helene, including the entire states of Alabama, Georgia, North Carolina, and South Carolina and parts of Florida, Tennessee, and Virginia. This week, the IRS extended the relief to victims of Hurricane Milton. In both instances, most taxpayers have until May 1, 2025, to file and pay their federal taxes.
Victims of these recent natural disasters have also been granted (☆) an FBAR filing extension for the 2023 calendar year. Your rule of thumb: FinCEN deadlines for FBAR filings will be the same as the IRS deadlines.
(So far, extensions have not been granted by FinCEN for purposes of the Corporate Transparency Act—or CTA.)
That said, following the storms, I’ve seen a lot of bad advice. And I mean A LOT. I cannot stress this enough: Do not take financial or legal advice related to disaster relief from a meme or social media. A misstep in filing a claim or seeking other relief can slow down benefits and could land you in trouble (if it’s purposeful). Consult with someone who knows what they’re doing. If you cannot afford to retain someone to help you, free legal help is available in almost every state. Here’s a list of some legal aid organizations that are offering assistance:
(Attorneys can also sign up to help. It may be the case that you don’t have to be licensed in that state to help. In my home state of NC, the NC Supreme Court issued an administrative order–called a Katrina order–that permits attorneys licensed in other states, like me, to temporarily register to provide pro bono legal services to those impacted by the storm.)
When it comes to taxes, the IRS has a special hotline specifically dedicated to taxpayers with disaster-related tax questions—disaster victims can call the agency’s disaster hotline at 866-562-5227.
Recovery will not be quick—it will take some time. At Forbes, our thoughts are with those affected by the storms.
We’ll also be cheering on those running the Chicago Marathon this weekend. Included among the nearly 50,000 runners on Sunday will be our own Forbes contributor, Darren Case. Earlier this week, he noted that running a marathon and estate planning may seem worlds apart, but share underlying principles that can provide valuable insights into achieving success. What do they have in common? Preparation, endurance, adaptability, and legacy.
Not all of us will be so industrious this weekend, though those taxpayers and tax pros trying to finish up tax returns on extension may feel like they’ve run a marathon. Hopefully, it won’t be too taxing. (I know, groan.) And of course, Jewish readers may be thinking deeper non-tax thoughts as they observe Yom Kippur on Saturday.
Enjoy your weekend,
Kelly Phillips Erb (Senior Writer, Tax)
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Taxes From A To Z: T Is For Tariff
In simple terms, a tariff is a tax imposed by a country on imports or exports of goods or services from another country. Tariffs are typically used for one, or sometimes both, of the following reasons:
- To make money
- To protect domestic industry from competition
In the U.S., the first tariff levied by our government (outside of those nasty British tariffs) was adopted in 1789. The not-so-cleverly named Tariff Act of 1789 had, as its primary goals, precisely the reasons stated earlier: money and protectionism.
That same year, the Treasury was charged with administering tariff laws. However, that role eventually would fall to the U.S. Customs Bureau, which was dissolved in 2003 in favor of the newly created Bureau of Customs and Border Protection.
A tariff is generally classified as a specific or ad valorem duty.
A specific duty is a fixed amount of money that does not vary with the price of the goods. An example of a specific duty would be a tax of $10 per pound of sugar. In 1789, those specific duties were imposed on 36 goods, including beer, wine, spirits, molasses, salt, sugar, tobacco, tea, and coffee. If that sounds like mostly good stuff, you’re right. It was considered a luxury tax aimed at the wealthy.
An ad valorem duty—Latin for “according to value”—is calculated as a percentage of the value of the goods. An example would be a tax of 20% on the value of cotton. In 1789, the ad valorem duties of 5%-15% were imposed on most imports not otherwise excluded from tax and included china, stone, and glassware.
Proponents argue that a tariff, since it typically increases the prices of imported products, should give domestically produced products a price advantage.
Opponents, however, argue that tariffs serve as trade barriers, reducing supply and raising prices. Goods and services from multinational corporations may cross several borders, subjecting them to multiple tariffs and exemptions, making the formula complicated and goods more expensive.
So, do tariffs work? Not always as intended. Noted American economist Frank Taussig found hardly any advantage in the early use of tariffs, saying, “Little, if anything, was gained by the protection.”
Not gaining anything is one thing, but losing something is quite another. The Tariff Act of 1930, known as the Smoot-Hawley Tariff, increased tariffs at unprecedented rates. The bill, signed into law by President Herbert Hoover over the protests of nearly 1,000 economists, pushed rates up for nearly 900 American duties. The act was meant to protect the U.S. economy and encourage domestic spending. The result, however, was a stake through the heart of global trade: European countries struck back with their own tariffs. The resulting trade war is considered one of the factors that led to the Great Depression. You can find out more about the history of U.S. tariffs here.
Tariffs have become a talking point following a proposal by Republican presidential candidate Donald Trump to impose a 10% tariff on all imported goods, with a 60% tariff on Chinese goods.
Questions
This week, a taxpayer asks:
I am a married taxpayer, but my wife and I have “Married Filing Separately” returns. Is there a provision that allows me to take “Standard Deductions” while my wife uses “Itemized Deductions” because of her high medical expenses?
Unfortunately, no. As I noted last week, you cannot use the standard deduction if you file as married filing a separate return and your spouse itemizes deductions. You must both file claiming the standard deduction, or both of you must file with itemized deductions.
It’s important to note that you also can’t double dip, meaning claim the same expenses for both of you. However, there’s no rule that says the spouse claiming a particular deduction must have completely paid for the expense—you can split expenses. That means that, in addition to expenses you’ve paid out of any separate account, you may be able to claim itemized deductions for expenses you paid jointly with your spouse. The “normal” rules still apply, which means that you must be eligible to deduct the expense—so, for example, real property taxes on property owned by just one spouse are only deductible for that spouse, even if the property was paid out of joint funds. Of course, the SALT deduction cap limits the itemized deduction for state and local taxes to $5,000 for a married person filing a separate return. (Note, however, that when you pay expenses from your separate funds, then only you may deduct them.)
As always, keep great records to support any deductions.
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Do you have a tax question or matter that you think we should cover in the next newsletter? We’d love to help if we can. Check out our guidelines and submit a question here.
Statistics
Earlier this week, the Social Security Administration announced that Social Security and Supplemental Security Income (SSI) benefits will increase by 2.5% in 2025 (☆) for more than 72.5 million Americans. On average, Social Security retirement benefits will increase by about $50 per month starting in January.
Social Security pays many kinds of benefits, but the most common are retirement benefits—those are intended to replace a percentage of your preretirement income based on your lifetime earnings. The amount varies depending on how much you earn during your lifetime and when you first receive your benefits—typically, the earlier you collect benefits, the lower the amount that you’ll receive.
Social Security retirement benefits are based on Social Security taxes collected. During your working life, wages and self-employment income are subject to Social Security and Medicare taxes taken out of your paycheck–those amounts are matched by your employers. Taxes on self-employment income are a bigger cut, since self-employed persons pay both the employee and employer contributions.
During your working years, Social Security taxes are subject to a wage cap. That means you pay Social Security taxes on your earnings until you hit the magic number. After that, your wages are no longer subject to Social Security taxes. For 2025, that magic number is $176,100.
SSI stands for Supplemental Security Income. It provides monthly cash assistance to people with limited income and resources who are 65 or older, blind, or disabled. Children with disabilities can also get SSI. For federal purposes, SSI benefits are not taxable.
While the average benefit for all retired workers is $1,976 per month, benefits can reach as high as $4,018 per month—that’s the maximum Social Security benefit for a worker retiring at full retirement age in 2025. It was $3,822 in 2024. Over the last decade, the cost-of-living adjustment (COLA) increase has averaged about 2.6%. The COLA was 3.2% in 2024.
A Deeper Dive
One of the side effects of increased scrutiny (☆) of the employee retention credit (ERC) has been a slowdown in refunds for businesses. By September 14, 2024, the IRS indicated that it was receiving more than 17,000 ERC claims per week, adding to an inventory of roughly 1.4 million pending and unprocessed claims. That means that, in some instances, employers were waiting more than two years since the ERC claim was filed for their refunds.
Those who are waiting are growing impatient. Under federal tax law, a taxpayer may file a lawsuit against the government for unpaid refunds, including the ERC. To file suit, the taxpayer must wait at least six months to provide the government with time to review the refund claim (unless the government denies it prior to the end of the six month period). Because of the large backlog of ERC claims, many employers are eligible to file refund lawsuits now against the IRS. And, many recently have.
On January 12, 2024, Polk Mechanical filed an ERC refund lawsuit in the Northern District of Texas seeking more than $3 million in ERCs under the fairly straightforward gross-receipts test. The parties had not reached a resolution on the ERC claims as of October 10, 2024—a scheduling order suggests that discovery will conclude in Polk Mechanical on January 17, 2025 and without a settlement, a jury trial is scheduled to begin on June 16, 2025.
The case demonstrates that it may take some time to convince the government on the validity of an ERC claim. Polk Mechanical involves the much easier computational gross-receipts test, but employers who claimed the ERC under the governmental order test should expect more difficulties and delays in proving their claims. At a minimum, employers who choose to file suit should make sure they have a valid assessment of their claim from a tax professional who can explain the potential risks and rewards in filing suit against the government prior to actually doing so.
Tax Filings And Deadlines
📅 February 3, 2025. Due date for individuals and businesses affected by Hurricanes Beryl and Debby (more info here (☆) and here (☆)), those in South Dakota affected by severe storms, straight-line winds and flooding that began on June 16, 2024, taxpayers in Puerto Rico affected by Tropical Storm Ernesto, and those individuals and businesses in Connecticut and New York affected by severe storms and flooding from torrential rainfalls that began on August 18, 2024.
📅 May 1, 2025. Due date for individuals and businesses in the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia affected by severe storms and flooding from Hurricane Helene (☆) and Hurricane Milton.
📅 September 30, 2025. Due date for individuals and businesses impacted by recent terrorist attacks in Israel.
Tax Conferences And Events
📅 October 22-24, 2024. NATP Tax Season Updates. Virtual. Registration required.
📅 October 25-27, 2024. NABA Regional Conference, Chicago, Illinois. Registration required.
📅 November 5-8, 2024. NATP Tax Con. Virtual, CPE available. Registration required. (If you tune in, I’m speaking on November 8, 2024.)
📅 November 11-13, 2024. AICPA-CIMA 2024 Women’s Global Leadership Summit, Hyatt Regency Bellevue, Bellevue, WA. Virtual. Registration required.
📅 December 12-14, 2024. ABA Section of Tax, 2024 Criminal Tax Fraud and Tax Controversy Conference, Las Vegas, NV. CLE available. Registration required. (Maybe I’ll see you there?)
📅 December 16-17, 2024. NYU 43rd Institute on State and Local Taxation, Westin New York at Times Square, New York, NY. CLE and CPE available. Registration required, virtual option available.
Trivia
The Florida city of St. Petersburg set a Guinness World Record from 1967 to 1969 of 768 straight days of what, specifically?
A) Gale-force Winds
B) Heavy Fog
C) Rain
D) Sunshine
Find the answer at the bottom of this newsletter.
Positions And Guidance
The IRS has published the Internal Revenue Bulletin for October 10, 2024 (IRB 2024-42).
Gould & Ratner has announced that Hrishikesh H. Shah has joined the firm as a partner in its Corporate and Tax Practices, focusing on handling employee benefits and executive compensation matters.
Holland & Hart announced the appointment of Commercial and Tax Litigation partner Jon Bender as the administrative partner of the Denver office. He will succeed corporate partner Sue Oakes. Bender regularly represents clients in sales, use, and property tax matters in his state and local tax practice.
Noteworthy
The American Institute of CPAs (AICPA) submitted comments to the IRS on the proposed rules regarding dual consolidated losses (DCL) and the treatment of certain disregarded payments. The DCL rules, under section 1503(d), prevent taxpayers from using a single economic loss to reduce both U.S. and foreign taxes. Congress enacted the DCL rules to prevent a dual resident corporation (DRC) or a separate unit (including a foreign branch) from “double dipping.” Double dipping occurs when a DRC or separate unit uses a single economic loss to offset income in two tax jurisdictions. The AICPA highlighted several areas of concern in the proposed regulations, including deferral of application of the rules to at least tax years beginning on or after January 1, 2025.
AICPA & CIMA, together as the Association of International Certified Professional Accountants, sent comments to the Organisation for Economic Co-operation and Development (OECD) Center for Tax Policy and Administration requesting clarification on the Transitional Country-by-Country Reporting (CbCR) Safe Harbour for non-implementing jurisdictions in 2024 under Global Anti-Base Erosion Model rules (GloBE), also known as Pillar 2. In its letter, the Association recommends the OECD clarify that a Multinational Enterprise group (MNE Group) is only required to meet the Transitional CbCR Safe Harbour for a jurisdiction once that jurisdiction is subject to one of the Pillar 2 charging mechanisms under the “once out, always out” approach.
Forbes is compiling its first-ever list of best-in-state CPAs, and nominations are now open. You can find all the details and submit a nomination here.
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In Case You Missed It
Here’s what readers clicked through most often last week:
You can find the entire newsletter here.
Trivia Answer
The answer is (D) Sunshine.
St Petersburg recorded 768 consecutive sunny days from February 9, 1967 to March 17, 1969. Here’s hoping for many more to come!
Feedback
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