This is a published version of our weekly Forbes Tax Breaks newsletter. You can sign-up to get Tax Breaks in your inbox here.
I think we’ve all had something we liked to collect at some point in our lives.
Me? I would gobble up the yellow, hardback Nancy Drew books. I would read—and reread—them, getting lost in the antics of Nancy and her friends, Bess and George. While I was a serious reader, I wasn’t a serious collector.
Gary Prebula is different. He collected comic books for seven decades, a habit he blames on his mother (she bought him a Superman comic book at age three and he was hooked). In 1963, at age 12, he plopped down 12 cents to buy the first issue of The Amazing Spider-Man #1, the character’s solo-debut after Stan Lee introduced the teenage superhero in the Amazing Fantasy series the year before. Marvel’s The X-Men #1, another Lee creation, also cost him 12 cents that year. Prebula never sold his comic books for a profit and had even written his name in his prized Spider-Man #1. A few years ago, he decided to donate them to the University of Pennsylvania. But it turns out that donating comic books—let alone 80,000 of them—isn’t as easy as writing a check to your favorite charity, particularly if you want to maximize your tax benefits. (☆)
Donations to charity can be tricky. That does not mean that you can’t claim a tax write-off, or even that you should not take a nice tax deduction into account when you are donating. However, the tax law is clear that you cannot write off a charitable contribution if it wasn’t really a charitable contribution. You also have to be prepared to substantiate your donations—something Prebula knows a little bit about.
The comic book collectors and enthusiasts that I talked to made clear that comic books are less about superheroes (though, clearly, those matter—we all have our favorites) and more about protecting art. At a time when comics are still a hot commodity (be sure to check out this week’s trivia question), art of a different kind—fine art—isn’t necessarily doing as well. According to a recent article, this year’s New York art auctions disappointed with just $1.4 billion in spring sales—22% lower than 2023 and off 36% from 2022. One reason might be capital gains.
Different kinds of taxes can impact different taxpayers. In a surprise reversal, New York Gov. Kathy Hochul announced that planned congestion pricing in Manhattan’s Congestion Relief Zone will be shelved indefinitely. The plan, which was set to begin on June 30, would have charged passenger vehicles up to $15 to enter Manhattan south of 60th Street and was intended to curtail vehicle traffic in and below Midtown—specifically by out-of-state drivers. In the near term, it seems lawmakers are considering raising taxes on local businesses to make up the financial difference.
Finally, as more graduations pile up (I’m attending another one this weekend), it’s encouraging to see young adults thinking seriously about education and careers—and the best path forward. That’s true in the tax world, too. A recent law firm merger between Kostelanetz LLP and Atlanta-based WELTY PC has also created an opportunity to strengthen its ties to Spelman College in Atlanta—a historically Black college and university (HBCU) for women. I talked to two Spelman graduates about the program—and their thoughts about tax law. The kids? They’re alright. (☆)
Enjoy your weekend!
Kelly Phillips Erb (Senior Writer, Tax)
Articles marked with (☆) are premium content and require you to log-in with your Forbes membership credentials. Not a subscriber yet? Click here to sign up.
Taxes From A To Z: B Is For Bonus Depreciation
Businesses must generally write off the costs of assets over their “useful life”—a number of years based on the kind of asset. Practically speaking, that means that you can’t claim a tax deduction all at once for certain items and must, instead, claim the deduction in bites according to a schedule.
You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. You can also depreciate certain intangible property, such as patents, copyrights, and computer software.
For years, one of the most common forms of depreciation was called straight-line and it’s calculated exactly as it sounds: an equal expense each year throughout the asset’s useful life until it depreciates to zero.
Bonus depreciation accelerates those deductions by allowing businesses to write off a large percentage—in some cases, 100%—of an eligible asset’s cost in the first year.
For years, the amount was limited. In 2017, tax reform changed the rules for bonus depreciation by allowing businesses to immediately write off 100% of the cost of eligible property acquired and placed in service after September 27, 2017, and before January 1, 2023.
The 100% write-off of eligible property expired December 31, 2022. Unless the law changes, the bonus percentage will be reduced by 20 points each year for property placed in service after December 31, 2022, and before January 1, 2027.
A bipartisan tax proposal—the same one that would have expanded the child tax credit—would have restored bonus depreciation for qualified property placed in service after December 31, 2022, and before January 1, 2026 (retroactive to the beginning of 2023) (☆). That measure passed in the House but stalled (and is likely dead) in the Senate.
Filing Statistics
This week, the Supreme Court issued a unanimous ruling in a court case focused on a common estate plan technique for business owners involving life insurance.It is well settled that, when calculating the federal estate tax, the value of a decedent’s shares in a closely held corporation must reflect the corporation’s fair market value. Life insurance proceeds payable to a corporation are an asset that increases its fair market value.
The question raised in Connelly v. United States was whether the company’s contractual obligation to redeem a deceased taxpayer’s shares at fair market value offsets the value of life insurance proceeds committed to funding that redemption.
The IRS said the answer is no, and the Supreme Court agreed (☆). You can find more about the arguments in the case—including a summary of the oral arguments here. (☆)
By way of background, the federal estate tax is a tax on the transfer of property at death. The tax is imposed on all of the property held at death “wherever situated” under section 2031(a) of the tax code, and generally only applies to estates valued at more than the filing threshold for the year of the decedent’s death. The threshold amount for 2024 is $13,610,000. (The table above shows returns filed in 2021, largely for deaths occurring in 2020, when the threshold amount was $11.7 million.)
For those of us under the exemption amount, there may still be reasons to explore gifting assets during life rather than post-mortem. There are methods for transferring wealth to loved ones while minimizing tax liabilities through the federal annual gift tax exclusion. Understanding and leveraging this exclusion can be quite powerful for families without even needing to use up your lifetime exemption.
Finally, while the ruling in Connelly is important for estate planners, it doesn’t mark the end of estate planning for business owners—in fact, Justice Thomas even raises an alternative in his opinion. There are a number of other techniques that are also worth taking a look at, from making annual gifts to rolling Grantor-Retained Annuity Trusts. If you’re searching for the perfect tax strategy to secure your legacy but can’t make a choice, perhaps consider an unconventional compass: your horoscope. (I’m not kidding—check it out.)
Questions
Extensions can be tricky. Taxpayers living and working out of the country have until June 17, 2024, to file their individual federal income tax returns—no additional request for an extension required. But what happens if you can’t make that date? One reader asks:I am currently living in Spain. I know I have to file my tax return by June 15. What happens if I can’t file by then? Can I get another extension? If so, for how long?
If you’re a U.S. citizen or resident and you live outside of the U.S. or Puerto Rico, and your main place of business or post of duty is outside of the U.S. or Puerto Rico, or if you are active duty military and live outside of the U.S., you qualify for a two-month extension without having to file Form 4868. That typically moves your due date to June 15 to file and pay (June 15 is on a Saturday in 2024, so the due date is moved to June 17, 2024). However, interest is still due on any tax payment made after April 15.
If you can’t make that due date, you can still file for an extension (☆).To get more time, file Form 4868 by the due date of your return (in your case, June 17, 2024).
Filing Form 4868 when you’ve already been granted extra time due to special rules doesn’t give you an additional six months. Your due date after filing Form 4868 is October 15, 2024 (six months from the original due date of April 15, 2024).
—
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.
A Deeper Dive
The Tax Court continues to tackle conservation easements, and in a recent case, the IRS racked up another big win. Big Escambia Ventures LLC is the tax matters partner in 13 partnerships. The principals purchased a 4,608-acre parcel in Escambia County, Alabama, for $9.5 million in early 2014 and split it into 13 parcels (12 became the main assets of investment partnerships). Near the end of 2014, the partnerships donated easements on the properties to the National Wild Turkey Federation (and the partnerships donated the fee interests in the properties to NWTF). All in, $187,370,000 in charitable contribution deductions were allocated to investors who had contributed just over $36 million for property that had changed hands in the same year for $9.5 million in an arms-length transaction. The IRS did not approve and neither did the judge.
Another high-profile court case was recently resolved—outside of court. The Attorney General for the District of Columbia announced a settlement with billionaire Michael Saylor and MicroStrategy, Inc., the company he founded and ran as CEO until August 2022, when he moved into the chairman’s role. As part of the settlement, Saylor and MicroStrategy will pay $40 million to resolve a lawsuit alleging that they violated the District’s False Claims Act and tax laws. The Attorney General claimed that Saylor lived in the District but avoided paying more than $25 million in income taxes by pretending to be a resident of Virginia, which has a lower individual income tax rate, and Florida, which has no individual state income tax. As part of the allegations, the government claimed it had obtained records from MicroStrategy—and relied on social media posts—to prove the case. Saylor and MicroStrategy deny that they have violated the District’s tax laws or the FCA but “wish to avoid the time, expense, and inconvenience of any further litigation, and to resolve any and all disputes and potential legal claims” related to the charges. The settlement has been referred to as “the largest income tax recovery in District history.” (☆)
Also potentially settling in court? FTX, formerly one of the largest crypto trading exchanges in the world. A proposed settlement would whittle the company’s claim made by the IRS to just $885 million. (☆) According to papers filed in the United States Bankruptcy Court for the District of Delaware, FTX, through its lawyers, indicated that it had reached a settlement with the government related to significant tax liabilities claimed by the IRS. If the settlement is approved, FTX may have to pay just $885 million to resolve existing IRS tax claims—those claims had been as high as $44 billion in earlier filings.
Tax Filing Dates And Deadlines
📅 June 17, 2024. Second-quarter estimated payments are due for individuals for the 2024 tax year.
📅 June 17, 2024. Due date for U.S. citizens or resident aliens residing overseas or in the military on duty outside the U.S., on April 15, 2024. If you can’t file by the deadline, you can request an extension. (☆)
📅 June 17, 2024. Due date for filing FinCEN Form 114, Report of Foreign Bank and Financial Accounts—or FBAR—for taxpayers residing outside of the U.S.
📅 July 31, 2024. Due date for individuals and businesses in parts of Massachusetts affected by severe storms and flooding that began on September 11, 2023. More info here.
Tax Conferences And Events
📅 June 9-12, 2024. Federation of Tax Administrators Annual Meeting. Hyatt Regency, Long Beach, California. Registration required.
📅 June 12-14, 2024. 16th American Bar Association (ABA) Annual U.S. and Latin America Tax Practice Trends. Mandarin Oriental, Miami, Florida. Registration required.
📅 June 17-21, 2024. National Association of Black Accountants (NABA) Insight 2024 FLOW. Aria Resort & Casino, Las Vegas, Nevada. Registration required.
Noteworthy
The American Institute of CPAs (AICPA) and Chartered Institute of Management Accountants (CIMA) honored eight CPAs during AICPA & CIMA ENGAGE 2024 in Las Vegas. Those included Lori Luck (Personal Financial Planning Distinguished Service Award), Mitch Kennedy (P. Thomas Austin Personal Financial Planning Scholarship), and Tony Nitti (Sid Kess Award for Excellence in Continuing Education). Additionally, there were three recipients of the Personal Financial Planning Standing Ovation award (Wesley Botto, Rebecca Conner, and Sean Gibbon) and two recipients of the Technology Advisory Standing Ovation (Raymond Cheng and Sophia Yang).
Cohen & Company, a tax and accounting firm with more than 800 professionals across the U.S., welcomed Kelly Anzevino, Ryan Boylan, Dave Gonano, Lisa Long, Jeffrey McMichael, Jonathan Williamson, and Stacey Wilson as new partners. The firm also elected two new members to the board of managers: Joe Falbo and Mike McGivney.
—
If you have career or industry news, submit it for consideration here.
Trivia
Which superhero was featured in the most expensive comic book ever sold?
A. Batman
B. Superman
C. Spider-Man
D. The Hulk
Find the answer at the bottom of this newsletter.
Our Team
I hope you’ll get to know some of our staff and contributors. This week, since we were talking astrology, I asked our team: What is your sign and do you think it suits you?
Kelly Phillips Erb (Senior Writer, Tax): I’m a Libra and it couldn’t suit this middle child-turned-lawyer more.
Mitchell Martin (Editor, Digital Assets): Capricorn and yes.
Maria Gracia Santillana Linares (Writer, Money Team): I’m a Leo on the cusp of Virgo, and I kinda identify with it? Someone told me August Leos are more tuned down than July Leos which I can see. I do think the sign traits get more accurate when you look at your sun and moon signs with it.
Brandon Kochkodin (Writer, Money Team): Cancer, and no clue.
Jena McGregor (Senior Editor, Leadership Team):
Sagittarius and mostly no
Tina Russo (Senior Editor, Money): I am a Libra. I can’t decide if I believe too much in it, but to be fair, some of the traits do seem to fit me: Fairness, diplomacy, and indecisiveness.
Ashley Case (Contributor, Tax): Virgos are detail-oriented, organized perfectionists. I am an estate planning attorney who spends much time advocating for the Oxford comma. I rest my case.
Virginia La Torre Jeker (Contributor, Tax): Capricorn and yes. Positive Capricorn traits: hardworking, direct, honest, loyal, persistent, ambitious, sensitive, practical, organized.
Amber Gray-Fenner (Contributor, Tax): Taurus. Suits me to a T.
Key Figures
That’s the federal estate tax exclusion in 1916, the first year of the tax under the modern tax system.
For 2024, the exclusion is $13,610,000 million per person or $27,220,00 million per married couple.
Trivia Answer
The answer is (B) Superman.
A 1938 comic book featuring Superman’s first appearance sold for $6 million at auction earlier this year, making it the most expensive comic ever, according to Heritage Auctions.
The comic book cost just 10 cents when it was first released 86 years ago.
Feedback
How did we do? We’d love your feedback. If you have a suggestion for making the newsletter better, let us know.
Read the full article here
