Accounting Solutions Ltd.

Hawaii Is Latest To Add "Millionaire's Tax"

The Land of Coconuts and Outrigger Canoes recently raised its top marginal income tax rate from 11% to 13%. This is a new tax bracket for single filers earning more than $500,000 annually.

Local lawmakers are calling it a “Millionaire’s Tax,” even though they're only off by half.

This nearly catches up with California’s 13.3% top rate and the combined New York state and city rate of 14.8%.

Honolulu lawmakers justified the increase by citing a budget gap, which is the usual justification for such increases. However, higher taxes generally lead to increased spending, which in turn prompts another call for higher taxes in the future.

Meanwhile, back at the ranch, the shrinking tax base only leads to larger budget gaps. According to calculations by Unleash Prosperity, the Aloha State has suffered from net domestic migration for years.

Hawaii is the third state this year to raise income taxes, following Washington and Maine.

The nine states with the highest current income tax rates, in order from highest to lowest, are California, Hawaii, New York, New Jersey, Oregon, Minnesota, Maine, Massachusetts and Washington. All of these states have one thing in common.

I'll give you 99 guesses as to what that is, as long as the first 98 don't count.

Let me leave you with this...

Massachusetts is seeing this as an opportunity rather than a crisis.

Talent from some of America's hottest artificial intelligence companies often passes through Boston-area universities before heading west to build billion-dollar businesses in the Silicon Valley. Political and business leaders in Massachusetts are saying that California's proposed tax on billionaires is an opportunity for change.

Of the 20 most valuable venture-backed U.S. AI companies, half have co-founders who attended MIT or Harvard, according to PitchBook data. And none of them are headquartered in Massachusetts.

The state has struggled to leverage what should be a built-in advantage regarding the AI boom powering much of the nation's economic growth. The higher concentration of investors in California, particularly those focused on early-stage funding, is a major motivator for western movement.

But that math could change if California moves ahead with a proposed one-time 5% wealth tax on individual assets of more than $1B. This would be a tax based on what a company is worth, whether it was sold or not.

Firms can be worth billions on paper, potentially leaving founders with huge tax bills and limited liquidity to pay them. Many founders might even end up bankrupt as a result.

Massachusetts Governor Maura Healey has been pitching the case for the state directly to Silicon Valley executives and investors. This seems ridiculous given that Massachusetts' top income tax rate is 9% on incomes exceeding $1,083,150.

Why isn't Illinois pitching these California founders and executives? There's plenty of VC Capital here for any start up and a flat income tax rate of 4.95%.

Of course, our state lawmakers can't even keep a professional football team that's been here for 105 years, so why would they ever consider making the time?

If you're having problems with your accounting and tax work, please schedule a complimentary tax planning session with me today,

We're all going to get through this. Let's get through it together...

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, Accounting and Tax Work, Tax Planning, or Tax Representation, you have but to ask. I'm here and I remain,

Sincerely yours,

Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300

www.SalarySolutions.net

www.AccountingSolutionsLtd.com

Disclaimer: The content on our website or newsletter is provided solely for general informational purposes and should not be construed as tax, accounting, legal, investment, or professional advice of any kind. Accessing this information does not create, and is not intended to create, an accountant-client relationship. This information may not reflect the most current tax laws, accounting standards, or regulatory developments and may not apply to your specific jurisdiction or circumstances. It is not a substitute for consulting qualified professionals. Before making any decisions or taking any actions, you should seek advice from a professional who is fully informed of all relevant facts pertaining to your situation.

Tax-related content on this site is not intended, nor may it be used by any taxpayer, to avoid penalties that may be imposed under applicable tax laws. To comply with IRS requirements, we inform you that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties or promoting, marketing, or recommending any transaction or matter addressed herein.

All information is provided “as is,” without any guarantee of completeness, accuracy, or timeliness, and without any warranty, express or implied, including but not limited to warranties of performance, merchantability, or fitness for a particular purpose. We disclaim all liability for any loss or damage arising from reliance on this information.

Links to third-party websites are provided for convenience only; we do not endorse or assume responsibility for their content. All materials are the property of our firm and may not be reproduced without prior written consent.

AI Systems Are Being Used To Incorrectly Choose State Audit Targets

Older forms of AI like machine learning have been used by tax departments for decades. Often called Automated Decision Systems, these systems are used by tax administrators to evaluate returns and identify red flags.

The machine learning model is trained to look for certain features that could indicate a return...

1 - May be fraudulent
2 - That income is underreported
3 - Or that a taxpayer didn't file a return they should have by cross-referencing data.

A group of Stanford researchers indicated that the IRS's automated systems had potential bias issues, particularly those evaluating people claiming refundable tax credits. The system was picking disproportionate numbers of taxpayers claiming the earned income tax credit, forcing large numbers of African American Taxpayers into audits.

The Government Accountability Office also examined the IRS system and determined that it could have similar bias issues due to how the machine learning model was trained.

A similar scandal in the Netherlands involved a biased algorithm that caused tens of thousands of people to be denied or forced to repay benefits to which they were entitled. This AI scandal was known as the Dutch Childcare Benefits Scandal.

Between 2013 and 2019, a discriminatory algorithm used by the Dutch Tax Authority incorrectly flagged over 26,000 families for alleged welfare fraud. The system subjected parents to severe financial ruin and ultimately caused the entire Dutch government to resign in 2021.

Now several State Taxation Agencies are using Generative AI, to do their thinking for them. Examples of this include...

1 - The California Franchise Tax Board recently adopted and implemented machine learning models within the last couple of years. They began using them to vet tax returns and to help the agency determine which ones to audit.

2 - The New York State Department of Taxation and Finance uses a system called the Case Identification and Selection System (CISS). This system has two basic purposes being fraud detection and collections. By one 2012 estimate, the system helped the state collect more than $2 billion in payments.

3 - California also began the Enterprise Data to Revenue Project, a long-term IT upgrade by the Franchise Tax Board to overhaul its information technology architecture.

Phase two of the project includes implementing new machine learning models to help the agency identify taxpayers who may be underreporting income, not filing returns, or committing fraud. The idea is that by utilizing more advanced tools, they can trawl through millions of returns and identify patterns indicating the need for staff to take a closer look.

The system sorts through the information, flags items, and then either processes them further with other automated systems or sends them to staff for review. The system has not undergone outside review that could indicate bias.

In other words, the nightmare that occurred in the Netherlands could happen here as well. No one is watching the machines.

A full transcript of the original conversation can be found at the following web address...

https://www.taxnotes.com/tax-notes-live/tax-notes-podcasts/tax-notes-talk/how-ai-bias-affects-state-audit-selection/7w4qz

Let me leave you with this...

Consider the implications of a biased machine learning system choosing the wrong taxpayer for an audit. The burden on taxpayers is particularly high.

Some experts noted that one effect of these more efficient fraud-identification systems is that the new system makes them much more efficient and faster at targeting and identifying individuals to pursue.

Much of this relates to electronic filing. Let's remember that the IRS only began allowing electronic filing so they wouldn't have to pay someone to type the numbers we put on returns into the system for checking, flagging, and ultimate audit selection.

With the mass firings and early retirements of almost one third of all IRS Employees, do you really think they aren't using these systems more now than ever before?

I noticed years ago one result of machine learning choosing audit targets and the speed at which it occurs. On the returns that we don't complete where an audit is intiated, the timing differences are staggering.

If a person mails in a return that's being audited, the timing on receiving an audit notice is normally 30 to 35 months after submission. That's because the statute of limitations on income taxes is 36 months.

If the Service wanted to audit outside that period, they would need to go to a Judge to show cause before extending the statute past three years.

However, electronically filed returns normally skip that review period. Those audit notices are normally received within six months of a filing date.

I can already hear my naysayers screaming that there isn't a difference between electronic filing and mailing in a return. A reasonable person would say the IRS only needs to scan a mailed return for the system to check it.

And in a reasonable world, you'd be correct, but we're talking about the IRS. Most of the Services' computer systems are programmed in FORTRAN. They don't have scanning capabilities.

The easiest way to avoid an audit in the US is to invest in a $0.76 cent stamp. At that point, these biased machines probably won't get a chance to look at you.

If you're having problems with your accounting and tax work, I'd love to help. Please contact us today.

We're all going to get through this. Let's get through it together...

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I'm here and I remain,

Sincerely yours,

Chris Amundson

President

Accounting Solutions Ltd.
773-267-7500
888-310-0300

www.AccountingSolutionsLtd.com

Disclaimer: The content on our website or newsletter is provided solely for general informational purposes and should not be construed as tax, accounting, legal, investment, or professional advice of any kind. Accessing this information does not create, and is not intended to create, an accountant-client relationship. This information may not reflect the most current tax laws, accounting standards, or regulatory developments and may not apply to your specific jurisdiction or circumstances. It is not a substitute for consulting qualified professionals. Before making any decisions or taking any actions, you should seek advice from a professional who is fully informed of all relevant facts pertaining to your situation.

Tax-related content on this site is not intended, nor may it be used by any taxpayer, to avoid penalties that may be imposed under applicable tax laws. To comply with IRS requirements, we inform you that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties or promoting, marketing, or recommending any transaction or matter addressed herein.

All information is provided “as is,” without any guarantee of completeness, accuracy, or timeliness, and without any warranty, express or implied, including but not limited to warranties of performance, merchantability, or fitness for a particular purpose. We disclaim all liability for any loss or damage arising from reliance on this information.

Links to third-party websites are provided for convenience only; we do not endorse or assume responsibility for their content. All materials are the property of our firm and may not be reproduced without prior written consent.

Remembrances This Memorial Day

Back in 1982, I was an actively precocious sophomore at the Latin School of Chicago. Latin has something called Project Week, where students take a week out of the busy school year, go off campus, and spend time doing something completely different hopefully learning from the experience.

One of the trips offered during Project Week is one to Russia where you visit Moscow and Leningrad. I did this back in 1982 before Russia became a wannabe Democracy.

So we hopped on a plane to JFK, another one to Finland, and then an Aeroflot Jet to Moscow. After twenty-four hours of miserable planes and airports, a Red Army soldier holding a Kalashnikov greeted us on the tarmac as we deplaned.

These Communists weren't playing games.

Going through customs was quite an experience. Another Red Army soldier stared you down as if you were there to commit espionage.

We'd been told to expect this. So I stared right back at him for a couple of minutes until he stamped my passport and visa, allowing me entrance.

We toured Red Square, Lenin's Tomb, and GUM, the largest Department Store in the world, which is kitty-corner to the square.

As you walk through GUM, you see endless lines winding down five flights of stairs then traveling several more blocks through the store and out into the square. Muscovites, or those who live in Moscow, would routinely spend thirteen to fifteen hours standing in these lines not knowing what they would receive at the other end.

Imagine a grown man spending fifteen hours in line just to get pantyhose or tampons? Further imagine being excited to get them so that you could trade for something else that you actually needed.

Such is the fate of those living under Socialism's failed economic system.

We were given Tourist Cards that allowed us entrance into the Tourist Hotels. These cards were highly sought after and routinely stolen because tourist hotels had gift shops filled to the brim with items that normal Muscovites could only dream of accessing.

The Communists were trying to present a public face by having these gift shops filled with goods. The common everyday reality of life under Socialism is one where no one gets everything they need, let alone want

Socialism unlike Capitalism is by definition an inefficient economic system. Whenever a government gives something to a person that they haven't earned, one of two bad outcomes must occur.

First, the government will take it from someone who earned it. When this happens, the person who earned it has a disincentive to continue earning.

This is detrimental to any economic system because that earner will likely leave sooner or later. The only remaining element is the citizen who takes rather than earns which only hurts the system.

Or Second, the government needs to print additional money to pay for that gift. This devalues the government's currency, which is also bad.

I present these facts to you given the history of Socialism, which has failed every country that has ever made this fatal mistake. Russia, Cuba, and most recently even Sweden have all learned from this mistake.

Let me leave you with this...

When I look at the forces of Socialism now prevalent in our Democracy, I ask a basic question which is, "How can so many ignore the lessons of history?" Those who don't learn from history are doomed to repeat it.

These Socialist forces seem to be everywhere simultaneously. Bernie Sanders, AOC, Mamdani in New York, and many of our local politicians espouse the benefits of Socialism.

And so many of our citizens actually believe these lies.

We live in a country where 40% of all Americans pay no income tax and the top 25% of earners pay 87.2% of the country's total bills. Go ahead and tell me that this "Progressive" income tax system isn't already Socialist in nature.

And so many think that even this isn't enough. Legislators are currently pushing tax bills that would make us pay even more.

This coming Monday is Memorial Day, a time to solemnly remember those who made the ultimate sacrifice for our Republic. And how will you remember those who served?

I'll remember my Father and Uncles who served during Vietnam. I thank God that they all made it home.

I'll also remember my Great, Great, Great Grandfather Ransom Knight, a freed slave from North Carolina who fought for the Union in our Civil War. Ransom never made it home, dying on a battlefield, leaving a wife a nine children.

And what did he die for? Socialism?

As Entrepreneurs, we're all leaders in our prospective communities. People look to us for governance, stewardship, direction, and opinion.

And how will you use that leadership position this Memorial Day?

Will you espouse the benefits of Socialism by saying that the government's job is to give more to everyone? Or will you honor the sacrifice of the millions of soldiers who died on battlefields to create the freedoms you now enjoy?

Do you really think that Ransom Knight gave his life so that America could become Russia, Cuba, or even Sweden during their Socialist Days?

Take a minute and think about spending fifteen hours in line just to get a couple of pairs of pantyhose. When we got back to O'Hare from that trip to Russia, I kissed the ground.

That was the day I fell in love with America.

Spend some time this Memorial Day honoring the lives of those who've been lost by leading your employees, your friends, your communities, and especially your family in the right direction. Although America has problems, it's still the greatest country on the planet.

May God bless you, your families, your companies, and the United States of America.

As always, if you're having problems with your accounting and tax work, I'm waiting for your call.

We're all going to get through this. Let's get through it together...

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I'm here and I remain,

Sincerely yours,

Chris Amundson

President

Accounting Solutions Ltd.
773-267-7500
888-310-0300

www.AccountingSolutionsLtd.com

Disclaimer: The content on our website or newsletter is provided solely for general informational purposes and should not be construed as tax, accounting, legal, investment, or professional advice of any kind. Accessing this information does not create, and is not intended to create, an accountant-client relationship. This information may not reflect the most current tax laws, accounting standards, or regulatory developments and may not apply to your specific jurisdiction or circumstances. It is not a substitute for consulting qualified professionals. Before making any decisions or taking any actions, you should seek advice from a professional who is fully informed of all relevant facts pertaining to your situation.

Tax-related content on this site is not intended, nor may it be used by any taxpayer, to avoid penalties that may be imposed under applicable tax laws. To comply with IRS requirements, we inform you that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties or promoting, marketing, or recommending any transaction or matter addressed herein.

All information is provided “as is,” without any guarantee of completeness, accuracy, or timeliness, and without any warranty, express or implied, including but not limited to warranties of performance, merchantability, or fitness for a particular purpose. We disclaim all liability for any loss or damage arising from reliance on this information.

Links to third-party websites are provided for convenience only; we do not endorse or assume responsibility for their content. All materials are the property of our firm and may not be reproduced without prior written consent.

Many Commercial Office Buildings Are Selling At A 90% Discount

Empty Chicago Office Buildings are selling at unheard-of prices. The Wall Street Journal is reporting that nationwide, just a few of the sales include...

1 - In Chicago, real-estate developer Marc Calabria bought a 485,000-square-foot office building for $4 million. The building sold for $68.1 million a decade ago.

2 - Developer Asher Luzzatto paid a mere $5.3 million for the Denver Energy Center, after a foreclosure process. The two-building complex sold for $176 million in 2013.

3 - Last month, the General Services Administration (GSA), the U.S. Government's Landlord, sold a 940K square-foot building to a residential converter for $24 million, a tiny fraction of its value from a few years ago.

Landlords and their lenders held onto their office towers for years, hoping for a turnaround after Covid. Now, they're accepting enormous losses.

Owners and creditors are capitulating to the reality that more employees are splitting their work time between home and office. They are also resigned to stubbornly higher interest rates, which lower property values and make it harder for buyers to borrow.

Not every office building goes for a few pennies on the dollar. The discount is most apparent in poorer-quality buildings, often in undesirable locations.

But most office sales reflect the sector’s steep decline. Even higher-quality properties on average have dropped about 35% in value from their peak, according to analytics firm Green Street.

Let me leave you with this...

Buyers are picking up office towers in major U.S. cities for next to nothing. These distressed sales are paving the way for new owners to pursue redevelopment ideas that would have been unthinkable just a few years ago.

Calabria in Chicago plans to convert the office building into an urban farm and education center. The company is working with Farmzero, which will use grow lights and hydroponic farming techniques to produce millions of pounds per year of berries, tomatoes, lettuce, herbs and other vegetables.

Rock-bottom prices are also accelerating the move to residential conversion. Developers who bought at steep discounts can now justify costly structural changes, that would have been financially unworkable at higher valuations.

Many buildings in our once sought after financial district are now being re-developed into residential housing. Of course, given the current administration, a substantial portion of those housing units are set aside for Section 8 Tenants.

Just imagine. The street where Marshall Field, James Kraft, and Charles Walgreen once did business is becoming Cabrini Green.

Investors purchased 204 distressed office buildings nationwide last year, up from 133 sales in 2024, according to data firm MSCI. Sales of these properties, which were auctioned out of bankruptcies or sold through foreclosures and lender seizure, came to $5.2 billion.

That being said, if you need an office building, even a smaller one, now would be the time to buy. As an investor, you always buy when everyone else is selling.

I purchased the building I'm now sitting in at the end of the last real estate recession for $160K. It was on the market a few short years before I bought it for $1.1M.

Think about it.

As always, if you're having problems with your accounting and tax work we'd love to help. Schedule a complimentary tax planning appointment today.

We're all going to get through this. Let's get through it together...

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I'm here and I remain,

Sincerely yours,

Chris Amundson

President
Accounting Solutions Ltd.
773-267-7500
888-310-0300

www.AccountingSolutionsLtd.com

Disclaimer: The content on our website or newsletter is provided solely for general informational purposes and should not be construed as tax, accounting, legal, investment, or professional advice of any kind. Accessing this information does not create, and is not intended to create, an accountant-client relationship. This information may not reflect the most current tax laws, accounting standards, or regulatory developments and may not apply to your specific jurisdiction or circumstances. It is not a substitute for consulting qualified professionals. Before making any decisions or taking any actions, you should seek advice from a professional who is fully informed of all relevant facts pertaining to your situation.

Tax-related content on this site is not intended, nor may it be used by any taxpayer, to avoid penalties that may be imposed under applicable tax laws. To comply with IRS requirements, we inform you that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties or promoting, marketing, or recommending any transaction or matter addressed herein.

All information is provided “as is,” without any guarantee of completeness, accuracy, or timeliness, and without any warranty, express or implied, including but not limited to warranties of performance, merchantability, or fitness for a particular purpose. We disclaim all liability for any loss or damage arising from reliance on this information.

Links to third-party websites are provided for convenience only; we do not endorse or assume responsibility for their content. All materials are the property of our firm and may not be reproduced without prior written consent.

State And Local Tax Collections Continue Their Meteoric Rise

The US Census Bureau releases total state and local tax collections figures, as well as tax collections broken down by tax type. In addition to individual and corporate income taxes, state and local governments collect sales, property, excise, and other taxes.

The results were surprising.

The one place in America where residents pay the highest amount of State and Local Taxes (SALT), wasn't a state but rather a district. The District of Columbia's residents paid a whopping $15,009 in SALT for fiscal 2023.

The five states with the highest per capita tax collections were...

1 - New York $12, 506
2 - North Dakota $9,934
3 - Hawaii $9,758
4 - Connecticut $9,388
5 - New Jersey $9,178

By contrast, the five states with the lowest tax collections per capita were...

1 - Arizona $5,006
2 - South Carolina $4,984
3 - Alabama $4,950
4 - Tennessee $4,912
5 - Mississippi $4,868

Illinois ranked 10th on the overall list at $8,339. Among our neighboring states, Missouri at $5,216 and Kentucky at $5,444 stand out.

Further information can be found at the following web address...

https://taxfoundation.org/data/all/state/state-local-tax-collections-per-capita/

Let me leave you with this...

I receive many questions every year about moving to a lower tax state. Whenever this happens, I ask the client to imagine an oblong balloon.

From left to right on the balloon imagine those positions signifying state income taxes, sales, property, and other taxes on the far right.

Let's say you're looking at a no income tax state like Texas. So squeeze the part of the balloon on the left hand side that represents the lack of income taxes in the state and see the other portions of the balloon increase in size.

Would you believe that Texas was 34th on the list at $5,737? Or let's look at Florida, another no income tax state, that was 44th on the list at $5,141.

My point is a simple one.

Running any state requires a certain amount of money. If they don't get that cash through income taxes, they'll get it elsewhere.

They have to. They don't have a choice. They have bills to pay, and they'll get that money one way or another.

As a matter of fact, higher income earners actually have an advantage in Illinois vs. some other states that no one seems to consider. Illinois income tax is a flat tax at 4.95%.

How would you like to pay 9.85% on Married Filing Joint (MFJ) Incomes of $338K or more in Minnesota? Or what about paying 7.65% on MFJ Incomes over $431K in Wisconsin?

It's certainly true that many Midwestern states like Michigan, Indiana, and Ohio have a flat tax system that's less expensive than ours, but then you have to ask yourself another question...

Is incurring the costs associated with moving really worth a couple of thousand dollars a year? You would lose about 5% of your home's value at the closing table when it was sold.

And that's not the only expense to consider.

What I'm trying to say is that the choice to move to another state shouldn't be solely about saving on taxes. I'm sure you never expected a tax guy to say that, but there it is.

If there are other reasons like family or health issues, saving a couple of thousand dollars on your taxes would simply the cherry on top of the decision. Think about it.

As always, if you're having problems with your accounting work or your taxes, I'm waiting for your call.

We're all going to get through this. Let's get through it together...

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I'm here and I remain,

Sincerely yours,

Chris Amundson

President
Accounting Solutions Ltd.
773-267-7500
888-310-0300

www.AccountingSolutionsLtd.com

Disclaimer: The content on our website or newsletter is provided solely for general informational purposes and should not be construed as tax, accounting, legal, investment, or professional advice of any kind. Accessing this information does not create, and is not intended to create, an accountant-client relationship. This information may not reflect the most current tax laws, accounting standards, or regulatory developments and may not apply to your specific jurisdiction or circumstances. It is not a substitute for consulting qualified professionals. Before making any decisions or taking any actions, you should seek advice from a professional who is fully informed of all relevant facts pertaining to your situation.

Tax-related content on this site is not intended, nor may it be used by any taxpayer, to avoid penalties that may be imposed under applicable tax laws. To comply with IRS requirements, we inform you that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties or promoting, marketing, or recommending any transaction or matter addressed herein.

All information is provided “as is,” without any guarantee of completeness, accuracy, or timeliness, and without any warranty, express or implied, including but not limited to warranties of performance, merchantability, or fitness for a particular purpose. We disclaim all liability for any loss or damage arising from reliance on this information.

Links to third-party websites are provided for convenience only; we do not endorse or assume responsibility for their content. All materials are the property of our firm and may not be reproduced without prior written consent.