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TaxBuzz Top 5 - House Members Push to End Puerto Rico Tax Breaks, Trump Suggests Eliminating Income Tax & More

by
Rebekah Barton
on
10/25/2024
TaxBuzz Top 5 - House Members Push to End Puerto Rico Tax Breaks, Trump Suggests Eliminating Income Tax & More

Each Friday, TaxBuzz brings you the top five tax and accounting headlines you need to know from the workweek. We know life can get busy and you don't always have time to scroll through your news feed to stay informed.

We weed through all of the week's stories to showcase the most important updates in the tax and accounting world.

1. IRS Announces 2025 Tax Year Adjustments to Deductions, Credits, and Income Brackets

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Credit: HABesen/Getty Images

The Internal Revenue Service (IRS) has released inflation adjustments for tax year 2025, which will impact taxpayers filing returns in 2026. Among the most notable changes, the standard deduction increases by $400 for single filers, reaching $15,000, and by $800 for married couples filing jointly, now set at $30,000. Heads of households will see an increase to $22,500, up by $600 from the previous year.

Marginal income tax rates remain the same, with the highest bracket of 37% applying to incomes over $626,350 for individuals and $751,600 for joint filers. Other tax rates, ranging from 10% to 35%, apply at adjusted income thresholds to account for inflation.

The Alternative Minimum Tax (AMT) exemption also sees a boost, rising to $88,100 for single filers and $137,000 for joint filers. The Earned Income Tax Credit (EITC) maximum will reach $8,046 for families with three or more children, up from $7,830.

Additionally, monthly limits on qualified transportation benefits increase to $325, and the Health Flexible Spending Account (FSA) limit will rise slightly. These adjustments provide taxpayers with incremental relief, ensuring brackets and credits reflect inflationary pressures.

2. Government Finalizes 45X Tax Credit Rules to Boost U.S. Clean Energy Manufacturing

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Credit: Phonlamai Photo/Getty Images

The U.S. Treasury and IRS have finalized regulations for the 45X advanced manufacturing tax credit, providing substantial support for domestic clean energy manufacturing under the Inflation Reduction Act (IRA). This tax credit specifically targets the manufacturing of batteries, solar, wind, and inverter components within the U.S., aiming to accelerate clean energy production and lower costs.

Notably, the tax credit includes a subsidy of $35 per kilowatt-hour (kWh) for battery cell manufacturing and $10 per kWh for battery modules, directly benefiting energy storage systems and the growing battery industry. With U.S. energy storage capacity expected to hit nearly 30GW by year’s end, this incentive is expected to attract further investments in lithium-ion battery production.

The finalized rules -- viewable here -- permit manufacturers to include certain material and extraction costs in their tax credit calculations, provided specific conditions are met. This will apply to critical minerals and electrode active materials, boosting incentives for component production with a 10% tax credit on production costs.

Alongside this production credit, the IRA offers an Investment Tax Credit (ITC) covering 30-70% of capital expenditures for downstream energy storage projects, as well as new pathways for monetizing credits through transferability and direct pay options. These measures seek to foster capital flow into U.S.-based clean energy projects and reduce reliance on imported technology, especially from China.

3. Trump Suggests Eliminating Federal Income Taxes, Experts Voice Skepticism

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Credit: Jeff Swensen/Getty Images

Former President Donald Trump, who has spent much of his current presidential campaign proposing various tax cuts, recently suggested replacing federal income taxes with tariffs, even floating the possibility of eliminating income taxes altogether. During a Q&A session on Fox News, Trump claimed the U.S. could return to an economy without income taxes, akin to the late 19th century, relying primarily on tariffs to fund the government. “We didn’t have income tax,” Trump said, describing tariffs as an alternative to the current system.

Trump's proposal has sparked concerns across the political spectrum. The Chattanooga Times Free Press notes that economists have pointed out that tariffs, unlike income taxes, are regressive, as they raise prices on imported goods that lower-income Americans spend a larger portion of their income on, such as clothing and groceries. While Trump contends that tariffs impose costs on foreign companies, many economists disagree, explaining that companies typically pass these costs onto consumers in the form of higher prices.

Though Trump has yet to detail how a tariff-based system would replace the revenue from income taxes, he insists it could be viable if Congress adopts his broader economic plans. Experts across the political spectrum, however, warn that the proposal could increase financial strain on working-class Americans while weakening the progressivity of the U.S. tax system.

4. House Members Push to End Tax Breaks for Wealthy Relocating to Puerto Rico Amid Displacement Concerns

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Credit: TexPhoto/Getty Images

Three U.S. House members are reviving efforts to dismantle a program that provides substantial tax breaks to affluent investors who relocate to Puerto Rico. Representatives Delia C. Ramirez (D-Ill.), Nydia Velázquez (D-N.Y.), and Alexandria Ocasio-Cortez (D-N.Y.) introduced a resolution calling for a swift response to Puerto Rico’s Act 22, which has attracted wealthy individuals with promises of low or zero federal taxes. The representatives argue that this program contributes to local displacement while depriving the U.S. of significant tax revenue, Bloomberg reports.

Once established as Puerto Rican residents, Act 22 participants can avoid federal income tax, pay only 4% on Puerto Rico income, and escape taxes on capital gains, dividends, and interest. While the law requires investors to purchase property, make charitable donations, and commit to job creation, there are minimal stipulations or accountability measures.

IRS and congressional scrutiny are intensifying. A Government Accountability Office report, requested by Velázquez, is expected next spring to assess the tax incentive's effects on Puerto Rico's economy and federal revenue. Advocacy groups like Power 4 Puerto Rico criticize Act 22, labeling it as a “tax loophole” that benefits millionaires at the expense of Puerto Rican residents.

5. UK Budget Debate Intensifies as Starmer and Sunak Clash Over Tax Definitions for "Working People"

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Credit: John MacDougall - Pool/Getty Images

As the UK prepares for its upcoming Budget announcement, Labour leader Sir Keir Starmer is facing mounting scrutiny over his tax plans, particularly around the definition of “working people.” Labour previously promised not to raise taxes on working individuals, yet has not fully clarified who fits within this group, notes the BBC.

Prime Minister Rishi Sunak, facing similar questions, recently stated that his view of a working person is someone “who goes out and earns their living” through traditional employment, rather than relying heavily on assets like property or investments. When pressed further, Sunak added that those with modest savings or stocks in tax-free ISAs could still count as working people, though exact thresholds remain unspecified.

The ambiguity around tax implications -- and other UK tax changes like proposed alterations to the "non-dom" regime -- may also affect Americans living abroad, many of whom retain assets in the UK or have dual UK-US tax obligations. Changes to tax treatments on capital gains or income thresholds could potentially lead to higher tax burdens for those maintaining investments across both countries. For American expats, closely tracking these developments will be crucial, as the US taxes worldwide income, making UK tax adjustments a factor in their overall financial planning and tax liability.

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Feature Image Credit: TexPhoto/Getty Images

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Rebekah Barton

Rebekah Barton

Rebekah's search engine optimization career began completely by accident as a college student. Over the course of her career so far, she has "grown up" with the SEO industry, from writing content while juggling classes to managing her own teams of writers and overseeing SEO strategy in subsequent roles. She is excited to bring her passion for high-quality content to CountingWorks, Inc.

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