Tax Breaks: The There’s No Crying In Baseball Edition
My grandfather worked his entire life. By the time he reached what we would consider "retirement age," he was still working. Farming and other manual labor had taken their toll on his body, so in his mid-70s, he would suit up in his uniform as a security guard and work nights at the local hospital. He was gone a lot. But on those hot, sticky summer afternoons in the south, when he had a free moment, he and I would sit and watch baseball on the old TV in the family room (for the record, he was a Cubs fan). Those are some of the most special memories of my life, and I suspect they are why I love baseball to this day.
I'll bet you have a similar story. For many, especially those of us in the U.S., baseball is synonymous with childhood summers and evening games of catch.
Baseball has been on the minds of many folks this week—and not just because of the World Series. Earlier this week, baseball great Pete Rose died at age 83. I noted () that if you asked ten people what they think about Rose, you'd likely get ten different answers. Rose's resume dazzles on paper—he still holds several baseball records, including the major league record for games played (3,562) and plate appearances (15,890). He racked up multiple awards, including two Golden Gloves (1969 and 1970), Silver Slugger (1981), and World Series MVP (1975). But he had his vices and polarized the baseball community. He admitted to cheating on his taxes—for which he did jail time—and betting on baseball. The latter is why he died without seriously being considered for the Baseball Hall of Fame.
Those hot, sticky summers? I spent them in my native state of North Carolina. The stories coming out of western North Carolina—and neighboring states—are heartbreaking. Recovery will be slow and expensive. If you can be generous and help, please do ( here's how ). Many Americans donate even if they can't claim a tax deduction. But some of the tax rules that apply are good to follow even if you're not claiming a tax deduction.
The IRS acted quickly () to announce relief for individuals and businesses affected by the storm, including the entire states of Alabama, Georgia, North Carolina, and South Carolina and parts of Florida, Tennessee, and Virginia. These taxpayers now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments. That date is particularly noteworthy as it's after the traditional tax filing deadline of April 15, 2025. Additionally, some of the areas hit by Helene were already extended because of Hurricane Debby—those due dates have also been pushed forward to May 1, 2025.
The recent damage to communities caused by natural disasters has renewed discussions about climate change. According to the United Nations, as greenhouse gas emissions blanket the Earth, they trap the sun's heat, leading to climate change. As a result, the world is warming faster than ever in recorded history. As policymakers seek to curb greenhouse gas emissions through taxation, the star of the show has always been carbon dioxide, but methane emissions are a significant challenge that also require attention. So why is it essential to address methane emissions, and what policy tools are we seeing in this area? Tax Notes contributing editor Nana Ama Sarfo tackles this issue in the latest episode of the Tax Notes Talk (transcript available).
Another controversial topic in the tax world is also getting a new look—whistleblowers. Earlier this year, the annual report to Congress issued by the IRS Whistleblower Office (WBO) suggested more taxpayers than ever () are blowing the whistle on bad tax behavior. The IRS paid whistleblowers 121 awards totaling $88.8 million in 2023—those amounts correspond to information that resulted in tax collections of $338 million. That's a significant increase from the total whistleblower awards paid in 2022 when just $37.8 million were distributed.
The WBO has recently announced some significant awards (details on two can be found here ). The WBO has also revised its part of the Internal Revenue Manual and provided guidance on when the WBO will "disaggregate" claims, i.e., make partial awards. This issue of partial awards has been a significant one. A classic example involves a criminal tax case that has been settled and all dollars collected, but there is an open civil tax matter. The WBO has historically waited for the civil matter to be resolved before paying. Whistleblowers, writes Dean Zerbe , have been in Mudville—with no joy (a bonus baseball reference).
Much of coming forward with a whistleblower claim—or defending an action based on such a claim—relies on having great records. Many people face the dilemma of what to do with old tax returns and supporting paperwork, often wondering when it's safe to discard them. However, determining the right time can be tricky, especially for taxpayers with foreign assets . Those with overseas financial interests must pay particular attention for many reasons, including expanded statutes of limitation that permit an indefinite IRS audit timeline and problems in retrieving records from foreign institutions, which can often be more challenging.
Speaking of records, it's possible that a few could be broken in the coming weeks. I know the extended tax deadline is just days away, but the World Series postseason heats up this weekend. Let's hope your team wins (and hopefully, your team will also be the Phillies).
Enjoy your weekend,
Kelly Phillips Erb (Senior Writer, Tax)
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Taxes From A To Z: S Is For Standard DeductionMost taxpayers opt for the standard deduction—but not all taxpayers understand why that happens. For most taxpayers, it comes down to numbers.
If your total deductions on Schedule A exceed the standard deduction for your filing status, you can claim that amount instead—these are your itemized deductions. Itemized deductions include, among other things, the home mortgage interest deduction, medical and dental expenses, taxes paid (including up to $10,000 of state and local income taxes), and charitable gifts. If the total of those deductions exceeds the standard deduction for your filing status, you will (in most cases) want to claim itemized deductions instead of the standard deduction. If the total of those deductions is less than the standard deduction for your filing status, you will want to claim the standard deduction.
If you're not sure whether you'll want to take the standard or the itemized deduction, and the math in your head makes it seem too close to call, run the numbers and see which is the most beneficial. If you're using tax software, that should be pretty simple, ditto if you're using a tax preparer.
As with almost everything tax-related, there are some exceptions. You cannot use the standard deduction if you file as married filing a separate return and your spouse itemizes deductions; you are a nonresident alien or a dual-status alien during the year; or you are filing a tax return for less than 12 months because of a change in your annual accounting method.
The 2017 tax reform changed the game for many taxpayers—the much larger standard deduction, together with limits on mortgage and SALT deductions and the elimination of other deductions (like unreimbursed job expenses, including the home office deduction for employees), made itemizing deductions less appealing. The overwhelming majority of taxpayers now claim the standard deduction—for 2021, nearly nine out of ten taxpayers (88.2%) claimed the standard deduction.
For the tax year 2024 , the standard deduction is $14,600 for individuals and married couples filing separately, an increase of $750 from 2023. Married couples filing jointly can claim $29,200, a boost of $1,500 from 2023, while heads of household can claim $21,900, an increase of $1,100 from 2023.
You are entitled to a higher standard deduction if you are age 65 or older at the end of the year (for this purpose, you are considered 65 on the day before your 65th birthday). If you are blind on the last day of the year, you are also entitled to a higher standard deduction.
For 2024, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,300 or the sum of $450, and the individual's earned income (not to exceed the regular standard deduction amount).
This week, a reader asks:
I'm buying a house. I am married. How much can each of our parents, three in total, give us in gift money before taxes?
Each year, you can make gifts up to the federal gift tax exclusion amount to as many people as you like without any gift tax consequences. For 2024, that number is $18,000 , up from $17,000 in 2023. That means that any person can gift you $18,000 without gift tax consequences—or they could gift 10 people $18,000 without gift tax consequences.
(The annual exclusion for federal gift tax purposes is predicted to increase to $19,000 in 2025.)
So, doing the math from your question, your three parents can gift you and your spouse a total of $108,000 ($18,000 limit x 3 donors x 2 recipients).
Here's where it gets tricky. If a gift exceeds the $18,000 limit for 2024, most taxpayers don't automatically pay gift tax. Instead, the amount of the gift over the $18,000 limit "chips away" at your available federal estate tax exemption—for 2024, that's $13,610,000 per person.
Let's assume your father gifted you $1,018,000—that amount is $1 million over the annual gift tax exclusion. Instead of paying gift tax on the $1 million, your father would file a gift tax return (Form 709) notifying the IRS that his exemption is reduced by $1 million. At death, he would only be able to pass $12,610,000 to his heirs, federal estate tax free (assuming he died in 2024–the federal estate tax exemption can vary from year to year due to inflation and, of course, any changes in the law).
The reality? Most taxpayers are not subject to the federal estate or gift tax.
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The IRS has announced that the number of states offering Direct File will double for the 2025 tax filing season to 24. For the next filing season, Direct File will be available in Alaska, Arizona, California, Connecticut, Florida, Idaho, Kansas, Maine, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin, and Wyoming. That means 62% of Americans will live in states offering Direct File.
In addition to expanding the number of participating states, Direct File will now cover additional types of income, credits, and deductions. It's estimated that more than 30 million taxpayers will be eligible to use Direct File in the 2025 filing season.
A Deeper DiveWith about a month left before the elections, the highly critiqued "no tax on tips" proposal promoted by both Donald Trump and Kamala Harris is still a talking point. Tax experts appear to hate everything about these proposals—Steve Rosenthal of the Urban-Brookings Tax Policy Center spoke for many with his list of complaints. "In tax policy, we evaluate proposed reforms by how well they promote equity, efficiency, and revenue," he wrote in a recent piece for Forbes. "'No taxes on tips' fails all three tests by singling out certain taxpayers for relief but not others similarly situated; distorting compensation arrangements and labor markets; and losing substantial revenue, potentially hundreds of billions of dollars in the first 10 years."
And, one of the worst things about the proposals is how ineffective they would be at actually helping tipped workers. The Budget Lab at Yale University noted in a recent report that "about 4% of families report tips to the IRS, and those who do are disproportionately young, unmarried, and lower-income. This means that many tipped workers do not pay income tax to begin with and would not benefit from a new deduction."
A little history, writes Tax Notes' Joseph Thorndike, can illuminate today's rush to exempt tips from taxation. Here's more .
Tax Filings And DeadlinesFebruary 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 . ()
September 30, 2025. Due date for individuals and businesses impacted by recent terrorist attacks in Israel.
Tax Conferences And EventsOctober 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.
Of the eight teams remaining in the run-up to the World Series, how many will likely be subject to the Competitive Balance Tax (CBT)—often referred to as the luxury tax?
A) Two
B) Four
C) Six
D) Eight
Find the answer at the bottom of this newsletter.
Positions And Guidancehas published the Internal Revenue Bulletin for October 7, 2024 ( IRB 2024-41 ).
has published Notice 2024-73 , which provides additional guidance with respect to long-term, part-time employees, including guidance regarding application of section 403(b)(12) under section 403(b) plans.
has submitted a letter to the Financial Crimes Enforcement Network (FinCEN) urging them to implement a policy to offer automatic filing extensions for Reporting of Foreign Bank and Financial Accounts (FBAR) and Beneficial Ownership Information (BOI) reports to victims of major disasters.
K&L Gates LLP announced the addition of Marcellin Mbwa-Mboma as a partner in its tax practice. Mbwa-Mboma joins the firm's Houston office from Ernst & Young LLP. Mbwa-Mboma concentrates his practice on advising multinational corporations in the areas of US taxation of cross-border acquisitions, dispositions, and restructurings. In particular, Mbwa-Mboma has extensive experience counseling life science corporations on these matters.
McDermott Will & EmeryCandice Nichol as a partner in its market-leading tax practice. Nichol joins from a Big Four firm and works with private equity funds and investors on the structuring of all types of international transactions across all asset classes.
Baker Tilly is expanding its advanced technology capabilities with the acquisition of Alirrium, a fast-growing leader in Robotic Process Automation (RPA) advisory and implementation services. Effective November 1, the move strengthens Baker Tilly's capabilities in RPA, artificial intelligence (AI) and machine learning to better support businesses in modernizing their operations and improving their competitive edge.
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In Case You Missed ItHere's what readers clicked through most often last week:
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Trivia AnswerThe answer is (B) Four.
While the official numbers are generally available at the end of the year, estimates suggest that the New York Mets, Los Angeles Dodgers, New York Yankees, and my own Philadelphia Phillies will be subject to the luxury tax for the 2024 season.
By rule, teams that exceed the payroll threshold are subject to the luxury tax—for 2024, that number is $237 million. The tax is figured on each dollar that payrolls are above the threshold, and the tax rate increases based on the number of consecutive years a club has exceeded the threshold (for the first year, there's a 20% tax on all overages, for the second consecutive year, the tax is 30%, and for the third consecutive year or more, it's 50%).
Tops on the list for the season will likely be the New York Mets, who are paying more money to players no longer on their roster ($70.3 million) than the entire total the A's are paying for players on their team ($60.5 million).
