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25 Feb 2018
Virginia Consumer Use Tax
Business Pearson & Co, PC 0 comment

VIRGINIA CONSUMER USE TAX

VIRGINIA CONSUMER USE TAX
Small Business Owners … Don’t Get Caught in Non-Compliance

Virginia Consumer Use Tax 1

OK, Virginia small business owners … you know all about paying sales taxes, because anything requiring that tax to be collected is done so by Virginia-based sellers/vendors you deal with. Likewise, you are familiar with the sales tax because you are required to collect it from buyers of your goods that are taxable.

Now let’s add another dimension to the world of taxable events … the consumer use tax. Generally, the consumer use tax becomes an issue when you rent, lease or buy tangible items that you didn’t pay sales tax on at the time of purchase. Practically speaking, this typically occurs when you buy something outside the state via the internet, by phone, through mail order or even an out-of-state purchase that you bring back to Virginia to use here.

Note: We’re not talking about “double taxation” on your purchases. They are subject to either sales tax or use tax, not both. Items exempt from sales tax in Virginia are also exempt from consumer’s use tax.

So for example, let’s say you order printer ink cartridges through a website of a company based in Texas and are not charged sales tax. You are required to pay use tax at the same rates as the Virginia sales tax. Sales tax rates in Virginia currently are:

Of course, there are exemptions. Rather than try to list those in this article, why not give us a call to discuss the specifics of your purchases and whether they are taxable or exempt.

The use tax is due for calendar-year filers by May 1. If you are a fiscal-year filer, your due date is the 15th day of the 4th month after the close of your taxable year.

Yes, there are penalties and interest charged for non-payment, underpayment or late payments. Click here for more info Penalty and interest … or better yet give us a call or drop an email. We’ll respond promptly.

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Summary

Small business owners especially need to be mindful of the need to comply with the requirements to declare purchases subject to use tax and to remit the applicable taxes.

Keep in mind that the Virginia Department of Taxation routinely conducts audits to enforce compliance. That activity is likely to become even more aggressive in this age of borderless commerce that is particularly fueled by the internet. The state has a vested interest in ensuring that businesses of all sizes pay either the sales tax or use tax on purchases that are not exempt.

As ever, we stand ready to help. A phone call or email to Pearson & Co. is all it takes.

25 Feb 2018
Tax Credits
Tax Credits Pearson & Co, PC 0 comment

THREE TAX CREDITS FOR 2017

INDIVIDUAL TAXPAYERS
Be Sure to See If You Qualify for Three Tax Credits

Three Tax Credits Blog 1

Taxpayers!

You may qualify for one or more of three often overlooked tax credits that may put more money in your pocket.

  • Earned Income Tax Credit (EITC)
  • Child Tax Credit (CTC)
  • American Opportunity Credit (AOC)

If you qualify, tax credits will reduce the amount of tax you will pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Here’s a brief rundown on each to determine your qualifications and potential tax-savings payoffs.

Note: Even if you are not required to file a tax return, consider doing so. If you qualify, you must file a 2017 tax return to claim your tax credit. You may end up paying less federal tax, pay no tax or even get a tax refund.

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Earned Income Tax Credit (EITC)

Note: Four of five eligible workers qualify – If not you, maybe someone you know.

Millions of taxpayers are likely missing out on this significant tax credit. That means larger refunds are being forfeited due to lack of awareness of this benefit.

If you know friends or loved ones who you think may have earned around $54,000 or less last year, you may do them a favor to learn about EITC eligibility and use the EITC Assistant to find out if they qualify.

Alternatively, we’ll be happy to help. Consider these potential benefits:

  • Eligible families with three or more qualifying children could get a maximum credit of up to $6,318.
  • People without children may receive an additional tax refund of $506.
  • Some may qualify even if they owe no tax in 2017.

Here’s more detail from the Internal Revenue Service to determine your qualifications and potential tax-savings payoffs.

2017 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates

Earned Income and AGI Limits

Earned income and adjusted gross income (AGI) must each be less than:

Three Tax Credits Table 1

Investment Income Limit
Investment income must be $3,450 or less for the year.

Maximum Credit Amounts
The maximum amount of credit for Tax Year 2017 is:

  • $6,318 with three or more qualifying children
  • $5,616 with two qualifying children
  • $3,400 with one qualifying child
  • $510 with no qualifying children

A last word on qualifying taxpayers … you may qualify as a taxpayer with disabilities, parents of children with disabilities or a grandparent who works and are also raising grandchildren.

Certainly worth asking the question, “Do I qualify?” Give us a call. We will deliver your answer.

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Child Tax Credit (CTC)

You may be eligible to claim a tax credit that will reduce your tax by as much as $1,000 per qualifying child. Additionally, if you do not qualify for the full amount, you may be able to take the refundable additional child tax credit. The basic criteria to determine a child’s qualifications are:

  • Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew);
  • Was under age 17 at the end of 2017;
  • Did not provide over half of his or her own support for 2017;
  • Lived with you for more than half of 2017;
  • Is claimed as a dependent on your return;
  • Does not file a joint return for the year; and
  • Was a U.S. citizen, a U.S. national, or a resident of the United States. If the child was adopted, see Adopted child.

Note: If you have at least one child that qualifies for the CTC, you may also be eligible for the Additional Child Tax Credit if you get less than the full amount of the CTC.

Clearly, this may be a complicated series of qualifications to decipher. If you even think you may qualify, give us a call to discuss and determine what you may expect in tax credits.

By law, the IRS is required to hold EITC and Additional Child Tax Credit refunds until mid-February — even the portion not associated with the EITC or ACTC.  The IRS expects the earliest of these refunds to be available in taxpayer bank accounts or debit cards starting February 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.

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American Opportunity Credit (AOC)

You may be able to claim a credit of up to $2,500 for education expenses you paid for each student who qualifies for the AOC. The basic qualifying requirements are:

  • The student is yourself, your spouse or a person claimed as a dependent on your return.
  • You pay the education expenses for a student enrolled in qualified, higher education.

Forty percent of the American opportunity credit may be refundable. So if the refundable portion of your credit is more than your tax, the excess will be refunded to you.

There are limitations on the amount of your income and the amount of your tax owed. Here’s an overview of those requirements and others.

Table 2-1.Overview of the American Opportunity Credit for 2017

Three Tax Credits Table 2

Click Here for the IRS details. Better yet, give us a call and we’ll quickly help you determine if you qualify and for how much.

Summary

You may qualify for one or more of three often overlooked tax credits that may end up with you paying less federal tax, pay no tax or even get a tax refund. Millions of taxpayers are missing out on this significant tax credit. That means larger refunds are being forfeited due to lack of awareness of this benefit.

Even if you are not required to file a tax return, consider doing so. If you qualify, you must file a 2017 tax return to claim your tax credit.

25 Feb 2018
Tax Law Pearson & Co, PC 0 comment

16 OF THE ZANIEST TRIES FOR A TAX-BREAK

The IRS Did Not Buy What These Taxpayers Were Selling

 

Without a doubt, you must give an ‘A’ (or at least an ‘E’) for effort when it comes to creativity by
American taxpayers seeking a tax break. Consider this sampling of 16 compiled and reported by
Kiplinger:

  • In search of peace and quiet
  • IRS induced emotional stress
  • Pizza as a payroll deduction
  • Standard deduction is doubled
  • Compensation for a wife’s affair

OK. You probably get the picture and the conclusion that none of these, plus a dozen more, did
not “fly” with the IRS. Click here for the whole array of whacky attempts to beat the tax code.

23 Jan 2018
Tax Cuts
Tax Law Pearson & Co, PC 0 comment

THE NEW TAX CUTS AND JOBS ACT

An Abbreviated Summary and How It Affects You

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Well it was a day-to-day roller coaster ride, but the Republicans finally cobbled together the Tax Cuts and Jobs Act that passed muster with both houses of Congress, plus earned President Trump’s signature on December 22, 2017.

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Quick Peek at the New Tax Act

Here’s the Reader’s Digest version, followed by a summary of provisions that may directly affect your taxes and your strategies to maximize your benefits under the new law during 2018 and beyond.

Note: This summary is an abbreviation of the plan details. You are urged to meet with your tax advisor for the specifics as it pertains to your unique circumstances.

  • Corporate tax rate cut from 35 percent to 21 percent (through 2025)
  • Top individual tax rate drops to 37 percent
  • Individual tax rates cut in all income tax brackets
  • Standard deduction is doubled
  • Personal exemptions are eliminated

Who Must File Form 1099?

Individual Income Taxes

The Act retains the seven income tax brackets but lowers tax rates which will be reflected in employees’ withholding in February 2018 paychecks.

Here’s what the new tax rates look like compared to the old.

2018 Income Tax Rates

Deductions & Exemptions

  • Standard deduction doubled from$6,350 for single filers to $12,000; married and joint filers increased from $12,700 to $24,000.
  • Personal exemptions of $4,150 eliminated
  • Most itemized deductions eliminated, e.g. alimony & home equity loan interest
  • Charitable contributions, retirement savings and student loan interest deductions retained
  • Mortgage interest deduction limited to the first $750,000 of the loan
  • State and local tax deductions limited to $10,000
  • Deduction for medical expenses that are 7.5 percent or more of income
  • Obamacare tax on those without health insurance repealed
  • Estate tax exemption doubled to $11.2 million for singles and $22.4 million for couples
  • Alternative minimum tax exemption increased from $54,300 to $70,300 for singles; from $84,500 to $109,400 for joint filers

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Child and Elder Care

  • Child tax credit increased to $2,000 from $1,000
  • 529 savings plans permitted for tuition at private and religious K-12 schools
  • Credit of $500 for each non-child dependent.

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Business Taxes

  • Corporate tax rate lowered from 35 percent to 21 percent
  • Standard deduction for pass-through businesses raised to 20 percent
  • Corporate interest expense deductions limited to 30 percent of income
  • Deductions for depreciable assets permitted in one year rather than amortizing over several
  • Others that mainly pertain to large corporations

Summary

Clearly there is much more to the revised and added provisions to the Tax Cuts and Jobs Act that cannot be included in this brief overview.  Click here if you’d like to read the Act in its entirety.

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Better yet, give us a call to schedule a time to review the specifics as they may affect your unique situation. Together, we can develop an optimum tax strategy that benefits you and your family.

23 Jan 2018
Tax Form Guidance Pearson & Co, PC 0 comment

FORM 1099 – NOT JUST A NUMBER!

The IRS is on the Hunt to Ensure Compliance

Pearson Tax 1099 Compliance

The Internal Revenue Service (IRS) has increasingly been scrutinizing tax returns that should have included, payments that would require you to file Form(s) 1099. Many taxpayers, both businesses and individuals, are likely candidates to comply with 1099 filing requirements … you may be one of them … read on to find out.

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Due Dates & Penalties

Both 1099 recipients and the IRS must be provided 1099s by January 31, 2018. The penalties for non-compliance – failing to file or filing late – are severe. Here’s a rundown:

  • If you file late but within 30 days of the due date, the penalty is $50 for failing to file the 1099 with the recipient and an additional $50 penalty for failing to file a copy with the IRS (for a total penalty of $100 per 1099).
  • If you file after 30 days but before August 2nd, the penalty is $100 for failing to file the 1099 with the recipient and an additional $100 penalty for failing to file a copy with the IRS (for a total penalty of $200 per 1099).
  • If you file after August 2nd, the penalty is $260 for failing to file the 1099 with the recipient and an additional $260 penalty for failing to file a copy with the IRS (for a total penalty of $520 per 1099).
  • Finally, if you intentionally fail to file a 1099, the penalty is $520 for failing to file the 1099 with the recipient and an additional $520 penalty for failing to file a copy with the IRS (for a total penalty of $1,040 per 1099).

In preparing your tax return this year, you must answer under penalty of perjury (a felony) the following two questions:

  • Did you make any payments in 2017 that would require you to file Form(s) 1099?
  • If “Yes”, did or will you file all required Form(s) 1099?

Assuming your answer to the first question is “Yes”, the appropriate answer to the second question is clearly “No” to avoid penalties.

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Who Must File Form 1099?

Generally, any trade or business that makes payments for rents, interest, compensation, or remuneration for services aggregating $600 or more for the year to a single payee is required to report the payments to the recipient of the payments as well as the IRS by filing Form 1099.

Note: This reporting requirement generally does not apply for payments to a corporation, other than payments made to corporations for attorney fees.

How do you determine if a business is incorporated?

The safest thing is to send a 1099, unless the invoice you pay and the check you write includes the words “Inc.”, “Incorporated”, or “Corporation”. For example, paying a bill to XYZ Contractors Company should trigger you sending a 1099 as it is undetermined that the business is incorporated.

Here are some of the more common examples of 1099 requirements:

  • Rent paid on your office space, even if your landlord is an LLC.
  • If you are incorporated and own your building, your corporation is required to send you or your LLC a 1099.
  • Paying a person or cleaning company to clean your office or maintain the lawn at your office will most likely require a 1099.
  • Paying a person or company to perform building maintenance, repairs, improvements, etc. at your office could trigger filing 1099s.
  • Paying someone for casual labor may require a 1099.
  • Payment to a team member that was not included on their W-2 form may require a 1099.

Note: In most cases all of an employee’s compensation should be reported on their W-2.

  • Paying an attorney or law firm, whether or not they are incorporated, to perform work related to your business requires you to file a 1099. Personal work such as wills and estate planning does not require filing a 1099.
  • Landlords with rental property who pay for lawn service, repairs or maintenance are subject to the1099 filing requirements.
  • Payments to LLCs that are not classified as an S or C Corporation.

 

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What happens if my request to provide information to send a 1099 is refused?

Before engaging and paying an unincorporated business or individual for services, you must require completion of Form W-9. This form lists the person’s or entity’s name, address, social security number or tax identification number, and their signature.

Note: Be sure that all of the above information is fully completed on the W-9.

You are required to maintain this form on file. If your request to complete the form is refused, you may want to re-think whether they are a good “fit” for your needs. In the event they won’t complete the form and you do continue to engage their services, you are required to do “backup withholding”. This means you must withhold 28% of their billing to you and remit it to the IRS.

Summary

Clearly, the requirements are complex and the penalties for non-compliance are severe. We stand ready to bring definition and clarity to your unique circumstances and how it may affect your need to file 1099s. Just give us a call or drop an email. We promise to respond promptly.

18 Dec 2017
Tax Credits Pearson & Co, PC 0 comment

AGING AND VIRGINIA TAX CREDITS

Are You Aging or Responsible for Someone Who Is?
There is Tax Relief from the Commonwealth of Virginia

Aging and Virginia Tax Credits - Pearson & Co. CPAs

There’s no question about it … we have an increasingly aging population in the U.S. and Virginia residents are no exception. More than 40 million Americans are now age 65+, nearly 15% of the population … which will reach 20% by 2030 when the last Baby Boomers turn 65.

Virginians over the age of 60 will register more than 25 percent of the Commonwealth’s population by the year 2025. For these seniors, their families and friends, the focus on accessible housing is increasingly important.

Notably, according to the MetLife Mature Marketing Institute, ninety-one percent of folks age 50 – 65 responded that they want to live in their own homes in retirement. That statistic is mirrored by the American Association of Retired Persons (AARP) which reports that nearly ninety percent of seniors want to stay in their own homes as they age, often referred to as “aging in place.”

Living under one’s own rules is a key reason seniors cite for aging in place. To facilitate that objective, seniors have identified housing features that are especially important in their later years as they begin to experience impaired eyesight, imbalance, reduced flexibility and diminished mobility. According to the AARP those “senior living assists” and their relative importance include:

  • Safety features such as non-slip floor surfaces (80 percent)
  • Bathroom aides such as grab bars (79 percent)
  • A personal alert system that allows people to call for help in emergencies (79 percent)
  • Entrance without steps (77 percent)
  • Wider doorways (65 percent)
  • Lever-handled doorknobs (54 percent)
  • Higher electrical outlets (46 percent)
  • Lower electrical switches (38 percent)

Most of these features do not currently exist in most seniors’ homes … and are expensive to install or upgrade. Fortunately, there is tax relief available to help Virginians.

Discuss Virginia Tax Credits with Pearson & Co. CPAs

Virginia Livable Homes Tax Credit (LHTC)

The Commonwealth of Virginia has initiated and supports the Livable Homes Tax Credit (LHTC) designed to improve accessibility and universal visitability in Virginia’s residential units. The objective is to financially assist seniors to install or improve housing features to help them age in place as health issues become more restrictive.

So let’s start with a brief lesson on “What are tax credits?”  The best way to describe tax credits is in contrast to what most taxpayers understand … tax deductions. Tax deductions reduce the amount of your income subject to tax. Tax credits directly reduce the tax itself.

For example, assume you or your business spends $5,000 that results in a tax deduction. That will reduce your taxable income by $5,000. In a 25% tax bracket, you would save $1,250 in taxes.

Now compare that with a $5,000 tax credit. That amount is subtracted from the amount of tax owed as opposed to an offset to income … as is the case with a tax deduction. Result: Your tax bill is reduced by the full $5,000 tax credit!

Taxpayers, businesses and individuals, find tax credits trump tax deductions every time in saving tax dollars as an offset to your Virginia tax liability.

Discuss the Livable Homes Tax Credit with Pearson & Co. CPAs

Livable Homes Tax Credit (LHTC)

The LHTC provides state tax credits for the purchase of new units or the retrofitting of existing housing units. Tax credits are available for up to $5,000 for the purchase/construction of a new accessible residence and up to 50 percent for the cost of retrofitting existing units, not to exceed $5,000.

Credits that exceed eligible individuals’ or licensed contractor’s tax liability may be carried forward for up to seven years.

Yes, there are other conditions and requirements. Click Click here to research.

Summary

As the foregoing illustrates, there is much to be gained by Virginia taxpayers who qualify for the LHTC. Likewise, there is much to know and do to meet the requirements.

The above presentation is meant as an overview only. Your best bet … give us a call and we’ll quickly help you determine if you qualify and for how much.

 

24 Nov 2017
Estate Planning Pearson & Co, PC 0 comment

BEN FRANKLIN AND YOUR ESTATE

Peace of Mind for Your Family & Orderly Transition of Assets

Ben Franklin and Your Estate

“In this world nothing can be said to be certain, except death and taxes.”
–  Benjamin Franklin

Nearly 230 years later … truer words were never spoken! There is no cure for either, but there are strategies to mitigate the effect of taxes in the event of death or disability.

That brings us to the topic of Estate Planning to deal with the unknown future as it relates to health and longevity of life, provide peace-of-mind for your family and create an orderly transition of assets in the event of death or disability. Additionally, as accountants, we seek to assist with all of the above in the most tax-favored ways possible.

A quick statistic: Approximately 55 percent of American adults do not have a will or other estate plan in place, according to LexisNexis.

Pearson & Co., PC - Certified Public Accountants in Richmond, VA

The Perils in the Absence of Adequate Estate Planning

In the absence of adequate estate planning, disability due to illness or injury can multiply otherwise avoidable legal and financial challenges. For example, one mistaken belief by many married couples is that financial and health care decisions can be made for one another in the event either spouse becomes disabled. Not necessarily true!

The able-bodied spouse may not automatically have access to the disabled spouse’s medical information and finances.

Likewise, in the event of death, there should be a carefully developed roadmap for the distribution of the deceased’s assets, minimize estate and transfer taxes, specify care for minor children and minimize or eliminate preventable conflicts among family and heirs.

The solution to this is the subject of this article – a properly crafted Estate Plan to protect, preserve and manage your estate in the event of death or disability.

Note: Your last name does not have to be Gates, Bezos or Zuckerberg to be a candidate for an estate plan. Virtually anyone 18 years old, married or single, should arrange for a trusted representative to make personal, health care and financial decisions in the event of incapacity to do so or death.

Selection of Your Decision Makers

Selecting your Estate Plan Decision MakersA critical element of your plan is your selection of decision makers, i.e. the executors, trustees, agents and guardians who will shoulder significant responsibilities on your behalf. Choices should never be made simply because an individual is a family member or close friend. Your selection should reflect the individual’s capabilities and willingness to fulfill the required duties of the role he or she is expected to play.

Choosing the executor of your estate is perhaps the single most important decision you will make to deal with the unknown future, provide peace-of-mind for your family and create an orderly transition of assets in the event of death or disability.

Competency, harmony and willingness to serve are the key ingredients to a successful choice of an executor. Let’s take a look at each.

  • Competency: Your choice of an executor is not that of a popularity contest, nor the age-ranking of a family member. Choices should never be made simply because an individual is a close friend , your oldest child or concern for hurting someone’s feelings. Your selection should reflect the individual’s capabilities, competencies and willingness to serve.
  • Harmony: In some instances, it may be prudent to appoint two or more adults as joint executors. Be thoughtful! Choosing two or more executors who have no history of successfully working together may create a confrontational atmosphere leading to less than efficient management of your affairs.
  • Willingness: Assuming the executor candidate is competent, it is important to determine that person’s readiness to assume the required duties of the role. Depending on the complexity of the estate, it may be a far more overwhelming task than expected. Additionally, there are potential legal liabilities for negligent handling of the estate.
  • Third-Party Choices: If there are no clear choices of an individual or compatible multiple of individuals to fulfill the role of executor, you may appoint an entity such as a bank, trust company or a law firm that offers executor services.

Now consider all of the above in the context of complexity of the estate, possible warring beneficiaries and outstanding legal issues. It may be a simple undertaking with a modest estate. It may prove daunting in an estate with multi-faceted intricacies. Remember, this will be a one-time, part-time job for an individual executor and may require a broad range of skills.

Of course, expertise does not have to be personally demonstrated in all aspects of “a day in the life of an executor”, as there is plenty of help available from a capable team of accounting, legal and investment professionals.

Client Goals and Values

Creating Your Estate Plan

Estate Planning is not a do-it-yourself project. Your best course of action is to seek help from experienced experts who specialize in estate planning matters. Once chosen, your advisors will determine the issues to be addressed and the appropriate documentation required to ensure instructions consistent with your desires.

Among the documents your advisors may recommend are a Will; Durable Power of Attorney for Health Care Decisions; Living Will; Durable Power of Attorney for Financial Matters, one or more Trusts; and a HIPAA Authorization. Estate plans do not lend themselves to one-size-fits-all, so the specifics of yours will be determined based on your needs, desires and estate valuations.

Summary

If the above appears daunting to you, that just underscores the need for competent, experienced estate planning advice. As you may anticipate, with so many possible combinations of documents and provisions of each, there is the potential for even simple mistakes to wreak havoc on the validity of your Estate Plan.

Your attorney and accountant will likely collaborate to ensure tax and other financial issues are properly addressed. Additionally, your financial advisors and bankers will be invaluable in offering guidance on planning the proper asset allocation and investment management of your estate.

Of course, at Pearson & Co. our work as accountants is to maximize your estate value and minimize your tax bite. In serving you, we can also introduce you to skilled estate planning professionals. If we can help with a referral … just ask.

 

 

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