As tax enforcement tightens and generational wealth divides widen, advisors are being pulled in every direction. Gen X clients are struggling to build lasting financial legacies, just as the IRS ramps up pressure on digital asset payrolls and cash-heavy small businesses. Meanwhile, a little-known strategy is helping retirees earn up to $141K in tax-free income—if they play their cards right. In corporate tax, a high-stakes battle is unfolding as the IRS challenges common shareholder loan structures, blurring the line between debt and equity.
This week’s top stories:
- Gen X’s wealth-building gap and planning challenges
- Crypto payroll under scrutiny with new IRS rules
- How retirees can unlock $141K in tax-free gains
- The IRS reopens the “debt vs. equity” tax debate
- 13 states where retirement income isn’t taxed
Let’s read all about it in today’s Tax Advisor Weekly.
1. Gen X Faces Steep Road to Building Wealth
According to new Vanguard data, Gen X is falling behind other generations in their ability to build and pass down wealth. Despite being in their peak earning years, 78% of Gen Xers say they’re worried about protecting assets—and many are underprepared for long-term estate or tax planning.
Key strategies discussed in the article include:
- Roth IRAs and HSAs for long-term tax-free growth.
- Whole life insurance as a tool for liquidity and estate transfer.
- Real estate and side income streams like Airbnb.
- Building emergency savings to avoid tapping retirement funds early.
Tax and wealth advisors may need to help Gen X clients realign priorities across debt management, retirement, and intergenerational transfers.
2. IRS Rules Make Crypto Payroll Risky and Complex
The IRS’s new Form 1099-DA and updated basis tracking rules are reshaping the landscape for crypto-based compensation. Employers must now support wallet-level tracking for any crypto payments to employees.
Compliance considerations:
- Zero-basis assumptions create audit risks without detailed documentation.
- Legacy payroll systems likely lack support for cost-basis reporting.
- Crypto paid to employees is subject to full income tax, payroll tax, and now reporting under digital asset frameworks.
Tax advisors should counsel companies using crypto-based perks to immediately upgrade compliance software and flag exposure risks.
3. Retirees Could Unlock $141K in Tax-Free Income in 2025
Using a strategy called tax gain harvesting, retirees with no or low taxable income may be able to realize up to $141,900 in long-term capital gains in 2025—completely tax-free.
How it works:
- Married couples filing jointly can take advantage of the 0% capital gains bracket up to $96,700.
- With standard deductions and senior credits added, the total tax-free thresholds approach $141,900.
- This applies even if the assets are sold and immediately repurchased—effectively “resetting” the cost basis.
While highly advantageous, this strategy may impact Social Security income or Medicare premiums and should be executed with expert guidance.
4. IRS Tightens Focus on Debt vs. Equity Classification
The IRS is expanding its scrutiny of whether advances to corporations—especially from shareholders—are truly loans or disguised equity contributions. The implications for cross-border businesses and reporting are significant.
Warning signs for reclassification:
- No set repayment terms or maturity.
- Payments tied to profit performance.
- Advances mirror ownership percentages.
If reclassified as equity:
- Returns may be treated as dividends, not loan repayments.
- U.S. taxpayers could face PFIC, 5471, or 8938 filing exposure.
- Inadequate documentation could reopen prior years to audit.
With the rollback of Section 385 regulations, the IRS is now leaning heavily on substance-over-form arguments. Tax advisors should review shareholder advance structures and prepare defensively.
5. 13 States That Don’t Tax Retirement Income
While most states exempt Social Security from income tax, only 13 states fully exempt retirement income (like 401(k) and IRA distributions).
States with no income tax at all:
- Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming
States that tax income but exempts retirement withdrawals:
- Illinois, Iowa, Mississippi, Pennsylvania
State-level tax planning remains an important but overlooked lever in retirement planning. Advisors should consider the full tax burden (not just income tax) when guiding clients on relocation.
Your Takeaway This Week
From crypto payroll challenges and new capital gains strategies to cross-border lending and Gen X’s wealth gap, this week underscores how quickly tax policy is shifting. The best advisors are staying one step ahead—not just to file returns, but to guide clients through risk, opportunity, and decision-making across the tax landscape.
Want to help your clients stay proactive in an increasingly complex environment?
Talk to Harness today about how our digital-first network of vetted tax professionals can support smarter planning.
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Disclaimer:
Tax related products and services provided through Harness Tax LLC. Harness Tax LLC is affiliated with Harness Wealth Advisers LLC, collectively referred to as “Harness Wealth”. Harness Wealth Advisers LLC is a paid promoter, internet registered investment adviser. Registration does not imply a certain level of skill or training. This article should not be considered tax or legal advice and is provided for informational purposes only. Please consult a tax and/or legal professional for advice specific to your individual circumstances. This article is a product of Harness Tax LLC.
Content should not be regarded as a complete analysis of the subjects discussed. Certain information contained herein has been obtained from third party sources and such information has not been independently verified by Harness Wealth. No representation, warranty, or undertaking, expressed or implied, is given to the accuracy or completeness of such information. Harness Wealth does not assume any responsibility for the accuracy or completeness of such information. Harness Wealth does not undertake any obligation to update the information contained herein as of any future date.
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