Category: News

13 May 2020
IRS, News, Tax Credits, Tax Law Pearson & Co, PC 0 comment

SMALL & MIDSIZE BUSINESSES HIT BY COVID-19

SMALL & MIDSIZE BUSINESSES HIT BY COVID-19
3 New Tax Credits to Help Relieve Your Financial Burden

Pearson & Co. CPAs COVID-19 Tax Credits and SavingsBusiness owners … you may qualify for one or more of three new tax credits announced and launched by the Treasury Department and the Internal Revenue Service.

  • Employee Retention Credit
  • Paid Sick Leave Credit
  • Paid Family Leave Credit

Each of these credits are designed to encourage businesses to keep employees on the payroll plus fully reimburse eligible employers for the cost of providing COVID-19 related leave to their employees. Qualifying for one or more of these business tax credits will deliver a financial win/win for employers and workers alike.

We’ll get into the details of each of the credits in a moment.  As a preface, let’s start with a brief lesson on “What are tax credits?”  The best way to describe tax credits are 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 your business spends $5,000 on equipment or some other item 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.

Why These 3 Tax Credit Breaks for Businesses?

The intent is to help businesses and employees weather the C-19 pandemic. As with the many other federal tax credits, the above three are business entitlement subsidies for any company that meets the legal criteria. With that background, let’s look at an overview of the provisions of each.

Employee Retention Credit

Again, this credit is designed to encourage businesses to keep employees on their payroll. The tax credit equals 50 percent of up to $10,000 in wages paid by an eligible employer including a portion of employer provided health care costs.

Eligibility is contingent on the business, regardless of size, being financially impacted by COVID-19. The exceptions are state and local governments and small businesses that take small business loans.

To be eligible, employers must be in one of two categories which must qualify each calendar quarter

  1. The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
  2. The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

There are differences in wages that qualify for employers with 100 employees or less and those with more than 100 employees.

Eligible employers will be immediately reimbursed for the credit by reducing their required deposits of payroll taxes withheld from employees’ wages by the amount of the credit.

Note: Click here for a complete rundown at the IRS website.

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

Paid Sick Leave Credit & Family Leave Credit

Small and midsize employers can claim two new refundable payroll tax credits … paid sick leave credit and the paid family leave credit.  The design and intent are to immediately and fully reimburse eligible employers for the cost of providing COVID-19 related leave to their employees … and to make that repayment immediate.

The Paid Sick Leave Credit applies for employees unable to work (including telework) because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis. Those employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee’s regular rate of pay up to $511 per day and $5,110 in total.

The Family Leave Credit reimburses employers for employees who are unable to work due to caring for someone with Coronavirus or caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable due to the Coronavirus. Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at 2/3 the employee’s regular rate of pay or, up to $200 per day and $2,000 in total.

Employees are also entitled to paid family and medical leave equal to 2/3 of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the family leave credit.

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.

Here’s a quick summary of these credits.

Employer Reimbursements:

  • 100% reimbursement for required paid leave.
  • Cost of health insurance is included in the credit.
  • Employers do not owe their share of social security and Medicare taxes on the paid leave.
  • Self-employed individuals receive an equivalent credit.

Quick & Easy Reimbursement:

  • Dollar-for-dollar tax offset against the employer’s payroll taxes
  • The IRS will send any refunds owed as quickly as possible.

Note: Click here for a complete rundown at the IRS website.

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

 

26 Mar 2020
2020 Required Minimum Distributions-Featured
IRS, News, Retirement, Tax Law Pearson & Co, PC 0 comment

SECURE ACT BUMPS RMD AGE TO 72!

SECURE ACT BUMPS RMD AGE TO 72!
A Boon for Taxpayers Who Can Afford to Delay IRA Withdrawals

2020 Required Minimum Distributions-FeaturedRequired Minimum Distributions (RMDs) are mandatory for Americans who are participants in Individual Retirement Accounts (IRAs) or participate in a 401K plan. In this article we’ll lump all under the heading of retirement accounts.

Since inception of the above plans, RMDs were the rule beginning at age 70½. With a stroke of his pen, President Trump signed the SECURE Act into law raising the RMD age to 72. This revision reflects that Americans are living and working longer. Notably, since the original law was enacted, life expectancy has increased more than 2 percent (1.6 years) for all Americans and more than 8 percent for those over age 65.

So, that means beginning January 1, 2020, money from the above retirement accounts must start flowing to you in specific, minimum amounts no later than April 1 following the year you reach age 72.  Other than Roth IRAs, RMD withdrawals apply to all other individual retirement accounts … IRA, Simple IRA or SEP IRA as well as 401K plans.

Note:  Roth IRAs are not subject to mandatory withdrawals until after the death of the owner.

Estimates are that only about 20 percent of retirees take no more than the minimum RMD. So, the change to the rules will have little effect on the remaining 80 percent who withdraw more than the IRS requires.

The RMD changes are a boon to most taxpayers who can afford to delay taking money out.

Here’s an example of the tax-saving difference the new RMD limit may deliver to a taxpayer who will be 70½ this year and having a retirement account valued at $100,000. Under the old rules, that person would be required to take a minimum IRA withdrawal of $3,650 in tax year 2020. In contrast, under the SECURE Act, the RMD will be $3,906 at age 72.

Delaying receipt of the RMD until age 72 reduces the taxpayer’s taxable income by $7,300.

The distribution amount will change from year to year based on accepted IRS tables that model anticipated life expectancy. Since life expectancy estimates diminish with age, annual RMD will vary as well. The exact distribution amount changes from year to year. It is calculated by dividing an account’s year-end value by the distribution period determined by the IRS.

The table shown below is the Uniform Lifetime Table, the most commonly used of three life-expectancy charts that help retirement account holders figure mandatory distributions. The other tables are for beneficiaries of retirement funds and account holders who have much younger spouses.

So, in keeping with the above calculations, assume our retiree is age 72 with a retirement account valued at $100,000. To calculate the year’s RMD amount, look at the age of the retiree on Dec. 31 (72) and note the corresponding distribution period (25.6). Divide the value of the retirement account by the distribution period to determine the RMD for that tax year … $100,000 divided by 25.6 = $3,906.

Note: Make sure you do this for all traditional IRAs or 401 K accounts you have in your name. Once you add up all of the RMDs for each of your accounts, you can withdraw that total amount from one or more of your retirement accounts. You don’t have to take your RMD from each account as long as the total you withdraw satisfies your RMD responsibility. Consider withdrawing from smaller balance accounts and close them out to simplify and consolidate your retirement accounts.

Why is a Minimum Distribution Required?

The good news is that you enjoyed years of tax deductions and (hopefully) tax deferred growth in your retirement account. So, it’s your money … why can’t you decide how much and when to take it out … or just leave it sit? The answer is the tax-man will get his due.

You paid no taxes on your deductible retirement plan contributions. And you paid no taxes on any incremental growth on your investments during the years accumulating your nest egg. Therefore, the IRS wants its just due when you withdraw funds in your retirement. That said, chances are your post-retirement tax bracket is lower than during your prime earning years, so you’ll likely keep more money than if you had not initiated your retirement account.

Similarly, if you were permitted to leave all your money in your retirement account, it would eventually become eligible to be passed on as inheritance and not trigger a taxable event. Your RMD compels you to take out at least a minimum amount which is added to your gross income and potentially subject to tax.

3 Frequently Asked Questions

There are three questions that are commonly asked and may be on your mind as well. It’s likely you will have others that we’d like to help you with … just give us a call or drop an email … we’ll respond promptly.

  1. Do you need to take your entire RMD all at one time?
    No. Frequency of withdrawals is not an issue. The important thing is that, in the aggregate, all your withdrawals add up to your RMD in the year required. 
  2. Should you appoint a named beneficiary for each of your retirement accounts?
    Yes. By so doing you will avoid your account balance(s) being included in your estate in the event of your death. 
  3. Are there consequences if I don’t withdraw my RMD as required?
    Yes. You may be subject to a 50 percent excise tax on the amount not distributed. 

Other Considerations

The foregoing is not meant as a comprehensive recount of the RMD requirements. There are other considerations that may apply in your specific circumstances. Some issues may include:

  • Inherited retirement accounts and RMD after account owner dies
  • RMD based on Joint Life & Last Survivor Expectancy Table if your spouse is more than 10 years younger than you and is sole beneficiary

If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that Pearson & Co. will help. Give us a call or drop an email. We’ll respond immediately.

27 Feb 2020
Employment, IRS, News, Tax Form Guidance, Tax Law Pearson & Co, PC 0 comment

NEW W-4 FORM IN THE NEW YEAR

YOUR NEW W-4 FORM IN THE NEW YEAR
Important to Pay Attention Early in 2020 to Avoid Surprises

You may have been among taxpayers who had an unexpected and unwelcomed experience last tax season … owing the feds rather than enjoying a refund. What happened? Well the tax code overhaul in 2017 resulted in positive tax savings for many if not most Americans. To complement these revisions to tax law, the IRS reduced the amount of tax withheld from wages to dovetail withholding with the provisions of the new law.

What followed was a demonstration of unintended consequences and many people didn’t have enough taxes withheld from their paychecks in 2018 to cover the taxes they owed … unintended consequences and unpleasant surprises.

As the remedy to avoid a repeat performance, the IRS overhauled the calculation of how much federal income tax an employer must withhold from an employee’s paycheck in 2020. The document for you to be concerned about is a revised Form W-4.

Yes, it’s different from the old form, so it’s important for you to review your entries on the new form to ensure accuracy in the amount of your withholdings. Your payoffs: 1) Avoid owing money at tax time along with a potential penalty. 2) Be sure you are not withholding too much and missing out on the use of that money all year … said another way, giving the IRS an interest-free loan!

While there is no requirement for you to file a new W-4 other than the practical reasons offered above, unless you start a new job after 2019. That will trigger your need to complete a new W-4 form. You’ll need to put together a fair amount of information which may require guidance from your tax preparer. So, it’s likely that you’ll choose to take the new form home and fill it out there rather than doing so on your first day at work.

If Your Taxes are Simple … So Is the New Form

Simple means you only have one job … and you’re not filing a joint return with a working spouse, no dependents, taking the standard deduction, not claiming tax credits and don’t receive income that is not employment related. If that’s your status, just provide your name, address, Social Security number and filing status followed by your signature and date.

Taxes Not So Simple

The new form provides entries for all income in your household. That means for each job you may have and your spouse’s income if you file jointly. You’ll have to assemble information about your spouse’s income, your dependents, tax credits, and the deductions you expect to claim. That information may trigger a call to your tax preparer to know your total deductions from last year, qualification for the child tax credit, non-wage income in 2019 and other tax-related items.

Note: If you choose not to disclose income from a second job that will be visible to your boss or to share your spouse’s income, you can use the IRS Tax Withholding Estimator to determine how much your household should have withheld and enter that on your W-4.

The Estimator doesn’t require you to provide sensitive information such as your name, Social Security number, address or bank account numbers. Additionally, the IRS doesn’t save or record the information you enter.

Be prepared with your most recent income tax return at hand, your and your spouse’s most recent pay stub plus other sources of income, e.g. invoices, statements and 1099 forms.

Sound Complex?

You are not alone … as with most tax-related things it can be confusing and time-consuming. There are resources that may help you. You could visit the IRS website and if you choose to dig deeper your might seek answers to frequently asked questions that others have posed. You may also receive guidance from your human resources department.

Better yet, why not give us a call and we’ll get it done for you.

27 Feb 2020
Employment, IRS, News, Tax Form Guidance, Tax Law Pearson & Co, PC 0 comment

EMPLOYERS! HEADS-UP ON NEW I-9

EMPLOYERS! HEADS-UP ON NEW FORM I-9
MAY 1, 2020 DEADLINE

You’re familiar with Form I-9 to verify the identity and employment authorization of individuals hired for employment in the United States. Through April 30, employers can choose to use the previous edition dated 07/17/2017 or the new edition. The new edition is now available and becomes mandatory beginning May 1, 2020.

All U.S. employers must properly complete Form I-9 for every individual they hire for employment in the United States …  that means citizens and noncitizens alike. Both employees and employers (or authorized representatives of the employer) must complete the form.

Employers must retain the completed forms for a designated period and make them available for inspection when called to do so.

For more detailed information visit the U.S. Citizenship & Immigration Services website, visit I-9 Central or join a free Form I-9 webinar.

As ever, Pearson & Co. stands ready to help!
Give us a call or an email. We’ll respond promptly.

31 Oct 2019
IRS, News, Tax Form Guidance, Tax Law Pearson & Co, PC 0 comment

THE EVER-EVOLVING FORM 1040

THE EVER-EVOLVING FORM 1040
Hopes for a Postcard to File Your Taxes … Dashed Once Again!

Post Card Tax Filing

Earlier this year, the IRS heralded the introduction of a new and improved tax Form 1040. You’ve heard that the new tax law provides for a “postcard-sized” tax return. The intent was to simplify filing Form 1040 for the 2018 tax year and presumably beyond. Like most of us, you immediately came up with a postcard-like image.

Well as it turns out, the IRS vision of a postcard-sized 1040 came out like this.

New 1040 Form

Now Pay Attention!  There’s a side 2 as well!

New 1040 Form - Back Side

But wait, there’s more to the story. Six new schedules were introduced relating to such things as additional sources of income and qualifying for tax credits.

Assuming your tax situation was super-simple, your responsibility was to file the base postcard return. However, the reality is that you most likely faced the necessity to also file one or more of the new schedules.

Here’s the IRS matrix summary to help you know which new schedules may apply.

IRS Matrix

OK. So much for simplicity.

Now comes the latest 1040 news from the IRS … the “postcard-size” Form 1040 has been officially scrapped. The IRS has announced abandoning its earlier effort to revamp the latest form and working on a new version that more closely resembles the traditional 1040 … remember 2017.

In large part, this turn of events is a direct result of objections from the tax preparation community that viewed the revised “work-in-process” prototype as being inefficient and burdensome.

In the words of the IRS, “We generally do not release drafts of forms until we believe we have incorporated all changes. However, in this case we anticipate it is likely that this draft will change at least slightly before being released as final. Whether we make changes to this draft or not, we will post a new draft later this summer with our standard coversheet (this page) indicating we do not expect that draft of the form to change.”

IRS Draft 1 - Form 1040

IRS Draft 2 - Form 1040

There are numerous changes in the draft version as it continues to evolve. This is not the place to enumerate the differences as the final version has not been released … although expected in November of this year. In its current form, the new 1040 has one more line than its predecessor … 24 vs. 23 and sports being 1.5 inches longer than the 2018 version.

Additionally, the Schedules 1-6 referenced above have been reduced to just three … Schedules 4, 5, and 6, which dealt with taxes on retirement plans, refundable credits and foreign addresses will no longer be in use Depending on content in the remaining three, a sigh of relief is in order.

Taxpayers Age 65 and Older … A 1040 Built for You

In July of this year, the IRS released a draft form of the 1040-SR, U.S. Tax Return for Seniors. Some of the design elements include:

  • Highlights retirement income streams and other tax benefits for older taxpayers.
  • Based on the regular 1040 and uses same schedules, instructions and attachments.
  • Larger fonts to make the text easier to read.
  • A standard deduction chart is featured for seniors to take advantage of the higher standard deduction.

To learn more about the debut of this form tailored for taxpayers 65 and older … Click Here.

How Will The New Form Affect You? Perhaps Not at All.

You are probably among the majority of American taxpayers who won’t file a paper tax Form 1040. Nearly 90% of taxpayers are expected to use a tax preparer or file electronically … more than 131 million people e-filed their returns in 2019.

If you intend your tax filing for 2019 to be a DIY project, be sure to reconsider and seek the services of a tax preparation professional. You’ll benefit from enhanced peace of mind and know that your tax bite, or refund, is accurate and to your maximum benefit based on your unique circumstances.

As ever, Pearson & Co. stands ready to help!
Give us a call or an email. We’ll respond promptly.

29 Aug 2019
Estate Planning, News, Tax Law Pearson & Co, PC 0 comment

YOUR LIFE CYCLE … AND THE TAX CUTS & JOBS ACT (TCJA)

YOUR LIFE CYCLE … AND THE TAX CUTS & JOBS ACT (TCJA)
The TCJA Affects Your Tax Planning Regardless of Your Stage of Life

Taxes and Life Cycle

While there is every likelihood that there will be continued guidance from the IRS or legislators, here’s how we see the TCJA as it affects various stages in life for individual taxpayers. Keep in mind that almost all these provisions expire after 2025.

Life Events and the TCJA

Married adults now enjoy relief from the so-called “marriage penalty”. That means that their tax return filed jointly will more closely parallel that of two people filing as single

Personal and dependent exemptions are eliminated. In place of personal exemptions, TCJA essentially doubled the standard deduction. Likewise, in place of dependent exemptions, TCJA doubled the per child tax credit. Additionally, higher income families enjoy substantially increased income thresholds that trigger a phase-out of the credit yielding more tax savings.

Tax-advantaged education plans, 529 plans, now permit up to $10,000 may be used to pay for primary and secondary school … and enjoy tax-free withdrawal of that amount by parents and grandparents. Given the escalating costs of higher education, the tax-deferred feature of funds in 529 plans continues to be attractive and motivating to retain funds in the plan for as long as possible.

Taxpayers taking new mortgages are limited to interest deductions on the first $750,000 of loan principal and may no longer deduct interest for home equity debt … unless the loan is used to purchase, build or substantially renovate your home.

Itemized deductions for property taxes and state and local income or sales taxes now capped at $10,000.

Alternative Minimum Tax (AMT) exemption levels are increased and the income threshold at which the AMT exemption phases out is elevated. These moves will significantly reduce the number of tax payers subject to the AMT.

Job change expenses such as preparation of resumés, travel and other work-related costs are no longer permitted as an itemized deduction.

Moving expenses are eliminated as a deduction, other than for active-duty military under orders to relocate. The impact for employers is that reimbursing employees for moving expenses is no longer tax deductible.

Investment gains i.e., qualified dividends and long-term capital gains taxes, remain unchanged. However, of note is that the dollar amount breakpoint at which the rates apply has increased offering important tax savings to investors.

Taxpayers who support their elderly parents and choose to itemize may deduct out-of-pocket medical expenses at an increase from 7.5 percent to 10 percent in 2019.

The annual contribution to Achieving a Better Life Experience (ABLE) accounts is increased and may be used to claim the retirement saver’s credit as well. Additionally, funds in 529 plans may be rolled over to ABLE accounts to further benefit disabled individuals.

Couples divorcing after 2018 will find that alimony is no longer deductible, and payments to the recipient are no longer taxable as income.

Summary

Of course, the above, and more, is subject to interpretation and additional guidance by the IRS and federal legislators. So, here’s a suggestion if you have questions as to how the TCJA affects you and your tax planning.

A time-saving and less stressful approach is to give us a call or drop an email to schedule a time to review the specifics of your unique situation and develop an optimum tax strategy to benefit both you and your family.

29 Aug 2019
IRS, News, Tax Law Pearson & Co, PC 0 comment

MAIL ADDRESSED TO YOU … RETURN ADDRESS: IRS

MAIL ADDRESSED TO YOU … RETURN ADDRESS: IRS
Know What to Do to Avoid Panic Attack

Pearson CPA IRS Mail

You may get a letter from the IRS, if not this year, perhaps some time in the future. When/if that happens, work hard not to get your exercise by jumping to conclusions. It does not mean that you are the object of an IRS audit.

It is likely that your letter is what’s called an IRS Notice CP 2000. While that may sound a bit intimidating … not to panic. The IRS sends this notice when information from a third party doesn’t match the information you reported on your tax return such as from an employer or financial institution. This discrepancy may cause an increase or decrease in your tax … or leave your tax bill unchanged.

That said, do not ignore the notice. There are specific steps for you to take to resolve whatever issue or issues are in question. Here’s a rundown on the basics. For more detail in writing click here or view this short video.

Notice CP 2000

  • The notice is to see if you, the taxpayer, agrees or disagrees with the changes proposed by the IRS.
  • You will have 30 days from the date printed on the notice to respond.
  • If you need personal assistance, your CP 2000 Notice will provide a phone number for you to call. You will then be connected to a live person (not an automated response system) to understand the meaning of the notice and what you need to do to resolve any issues.

The IRS is persistent … here’s what happens if you don’t respond, or your response is unacceptable.

Notice CP3219A

  • You will receive another notice if you don’t respond or if the IRS does not accept the additional information you provided.
  • The notice will detail why the IRS proposes the tax change and the reasoning that went into determining the change.
  • If you disagree, you have the right to challenge the decision in Tax Court. Whether you choose that remedy or not, the IRS will continue to cooperate in helping you resolve the issue.

Takeaways

OK.  Hopefully, you agree there is no need to panic if you receive your CP 2000 Notice. So now you may choose to face the response on your own.

Alternatively, a time-saving and less stressful approach is to give us a call or drop an email to schedule a time to review the specifics of your unique situation and together develop an appropriate response.

29 Oct 2018
Business, News, Tax Law Pearson & Co, PC 0 comment

END OF YEAR TAX STRATEGIES

END OF YEAR TAX STRATEGIES

For Business Owners and Individual Taxpayers

Pearson & Co. CPAs - November 2018 Blog Post

Yes … it’s hard to believe … the 2018 income tax season is nearly upon us. Certainly, seems like we just finished with 2017.

As the old adage goes, “No time like the present”, to start thinking about what steps to take to be sure you enjoy maximum tax-savings advantage in the first taxable year under the Tax Cuts and Jobs Act (TCJA).  So here are considerations for you to discuss with your professional tax advisor.

As ever, Pearson & Co. stands ready to serve you in your tax and accounting needs.

Pearson & Co. CPAs - Year End Tax Strategies

Business Owners

The TCJA reforms can affect the bottom line of many small businesses. Notably, the tax-saving benefits come down to three major categories:

  • Qualified Business Income Deduction
  • 100% Expense Deduction for Depreciable Business Assets
  • Employee Fringe Benefits

Qualified Business Income Deduction

This provision in the tax reform legislation applies to so-called pass-through businesses, i.e. enterprises’ income that is taxed on the firm-owners’ personal tax return. These entities include partners in partnerships, shareholders in S corporations, members of limited liability companies (LLCs) and sole proprietors.

All taxpayers who qualify as described above and who earn less than $157,500 and file singly ($315,000 for a married couple) can now deduct from their overall taxable income 20% of the income they receive via pass-through businesses.

There is more to the story, so be sure to seek guidance from a qualified tax professional. For example, S corporation owner’s salary must meet the “reasonable compensation” standard.

100% Expense Deduction for Depreciable Business Assets

For tax years 2018 through 2025, businesses are now able to write off most depreciable business assets in the year the business places them in service. The 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property.

Machinery, equipment, computers, appliances and furniture generally qualify. Additionally, the TCJA expands definition of eligible property improvements made to non-residential property.

Note: The maximum deduction increased from $500,000 to $1 million per year.

So if you’ve been holding off on these types of purchases, reconsider your position in light of the considerable tax savings that may result.

Employee Fringe Benefits

Entertainment and meals: The new law eliminates the deduction for expenses related to entertainment, amusement or recreation. However, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer or an employee of the taxpayer is present and other conditions are met. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.

Qualified transportation: TCJA disallows deductions for expenses associated with transportation fringe benefits or expenses incurred providing transportation for commuting unless necessary for employee safety.

Bicycle commuting reimbursements: Employers can deduct qualified bicycle commuting reimbursements as a business expense for 2018 through 2025. However,  these reimbursements in must be included in the employee’s wages.

Qualified moving expenses reimbursements: Reimbursements an employer pays to an employee in 2018 for qualified moving expenses are subject to federal income tax.

Employee achievement award: Special rules allow an employee to exclude certain achievement awards from their wages if the awards are tangible personal property. The new law clarifies that tangible personal property doesn’t include cash, cash equivalents, gift cards, gift coupons, certain gift certificates, tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities and other similar items.

An employer also may deduct awards that are tangible personal property, subject to certain deduction limits.

Pearson & Co. CPAs - Year End Tax Strategies

Individual Taxpayers

Double-check Your W-4 Form

If you haven’t already done so check to be sure that your employer is withholding the correct amount of federal taxes from your paycheck. The idea is to have your withholdings match your anticipated tax bill, thereby avoiding owing taxes or penalty. On a more positive note, you may find that it is more advantageous to have less withheld and enjoy more take-home pay.

The IRS has made your reality check simple. Just use the IRS Withholding Calculator. Here’s what to do.

Just click here and answer a few questions … Withholding Calculator

Harvest Stock Losses That Qualify as Tax Deductions

If you file jointly you may deduct up to $3,000 ($1,500 if filing singly) in losses on stocks you sell before year-end. Doing so will reduce your taxable income, plus offset any gain on stocks you sell as well.

Compare Benefits of Standard Deduction vs. Itemizing

The new tax law essentially doubled the standard deduction and significantly reduced the qualifications for itemized deductions. Even if you have a history of itemizing, this year you may be better off taking the standard deduction.

Note: Traditionally, Virginia tax law has conformed to federal. However, that is not the case today as the state standard deduction has not been increased to track with the revised federal rules. There are proposals to revise the Commonwealth’s law, so be sure to check with your tax advisor to determine your best tax strategy.

Maximize Your Tax Advantaged Retirement Plan Contributions

Make the most of your 401K, IRA and other tax favored savings plans.

Flexible Spending Accounts

Check on your plan’s deadline for withdrawals and your current account balance. To avoid losing funds, schedule your medical appointments and purchase other health care items covered by your plan.

Divorce Considerations – Possible Sense of Urgency

Thanks to the Tax Cuts and Jobs Act (TCJA), alimony payable for divorces entered into after this year will no longer be tax deductible to the payor and will not be taxed as income to the recipient. That may result in conflicting desires on the part of divorcing couples based on comparative benefits.

Couples considering a divorce should study five areas of concern before the end of the year … ideally with guidance from a tax professional and other expert advisors with a success history of dealing with married partners calling it quits.

  • Alimony
  • Business Valuation
  • Pensions
  • Other Assets
  • Prenuptial Agreements

Takeaways

Is the tax code complex? Yes … for both business owners and individual taxpayers. And this, the first taxable year under the revised tax code, stands to be even more complex as there are unanswered questions and interpretations that will continue to surface.

Pearson & Co. stands ready to help. Call or email … we’ll respond promptly!

24 Sep 2018
Supreme Court Ruling
Business, News, Tax Law Pearson & Co, PC 0 comment

SUPREME COURT RULING STUNS SMALL ONLINE BUSINESSES

SUPREME COURT RULING STUNS SMALL ONLINE BUSINESSES
At Stake … Comply With Tax Laws of 50 States and 3,000+ Counties
To Collect and Remit Sales Taxes

Pearson & Co. CPAs

In a decision earlier this year, the Supreme Court of the U.S. (SCOTUS) ruled that states may collect sales taxes on sales by businesses within the state … whether or not the business had a physical presence in the state. This overturned a 1992 SCOTUS ruling which limited states ability to collect sales taxes only from entities with a brick-and-mortar presence within its borders. The prior decision has now been declared “unsound and incorrect” by the high court.

Impacts of the latest ruling have been received as either an unprecedented economic burden or a long overdue and positive leveling of the playing field. Small businesses selling online subscribe to the former while larger companies and tax collecting jurisdictions applaud the decision. Let’s take a look at who loses, who wins and what role Congress may play as the repercussions of this ruling pan out.

Small Online Businesses

The real challenge for small online businesses is the complexity of compliance issue. Each state determines what products, goods or services are subject to sales tax. Additionally, there are county and local tax jurisdictions that may weigh in for their share as well. So small online businesses are faced with a myriad of designations of what’s taxable, by whom, and in what amount … without any uniform definition.

So from a practical standpoint, let’s consider a Virginia based business that sells online. Clearly, the responsibility for sales within the Commonwealth is to collect and remit taxes to appropriate tax collection entities. Depending on volume of sales, that may require a few hours or at most several days for an employee to perform this function as part of a larger job responsibility.

United States Counties

Now duplicate that function with clashing requirements by 50 states, 3,000+ counties and by some estimates potentially as many as 12,000 jurisdictions nationally … no longer a part-time activity. Perhaps a typical example is a small business paying $20 to $60 quarterly to each of dozens/hundreds of jurisdictions.

So businesses, especially small businesses, operate on the same basis as individuals … finite financial resources to be deployed in the most advantageous way to maintain and promote the value of the business to all stakeholders – customers, owners and employees. Cost to employ compliance personnel restricts or eliminates valuable assets that may otherwise be directed to job creation, capital formation and return on investment. That means added cost to the detriment of increased investment in economic growth with a “trickle-up” loss to the national welfare.

When you consider the sheer numbers of tax jurisdictions that now must be served by small online businesses, with no uniformity of compliance requirements, recognize another likely event … audits by out-of-state jurisdictions. What’s a small business to do when faced with a claim? Respond with legal representation to a demand letter … at what cost … or take the easy way out and pay the requested amount rather than trying to defend a far-off tax court action?

So small online businesses are stunned by the reversal of a long-held ruling that sales tax only need to be paid on sales where the business has a physical presence. What to do? Small online businesses are becoming aligned in an effort urging Congress to step in and create national standards for interstate commerce and supplant the current patchwork quilt of state and local tax laws. Stay tuned!

Effects on Larger Businesses

Larger Businesses … Including Those Seling Online

Companies that have a bricks-and-mortar presence have been unanimous in applauding the SCOTUS decision. Their claim, not entirely without merit, is that they have been operating at a competitive disadvantage. While online sales by small business are dwarfed by the revenues generated by the big guys, they continue to grow steadily and drive a concerted call for a more even playing field and fairer tax legislation.

A statement from Target read in part, “We are pleased the Court’s ruling will close the loophole that has allowed online-only retailers to avoid collecting and remitting sales taxes while still requiring local businesses to do so.”

Interestingly, supporters of the SCOTUS ruling include big online sellers like Amazon, Walmart and Target. While they now frequently collect and remit state taxes, local taxes are rarely if ever included in that effort. So this does add to their tax responsibilities, but they have a massive technology advantage over small sellers so are generally comfortable in dealing with the change.

Note:  Technological strength could become a boon for Amazon.  It already has the compliance machinery in place and can make it easy for a seller using Amazon’s platform to collect and remit sales tax. Small online retailers may be strongly motivated to engage with Amazon for this immediate resolution to challenges they may not be able to handle financially.

States, Counties and Local Tax Jurisdictions

“Follow the money” is often touted as a sure path to determine motivation. Sales taxes typically range broadly from 1 percent to 10 percent or so. If we think about 5 to 7 percent as a likely jump in added revenue, it’s not a tremendous windfall for the tax collectors.

That said, according to the SCOTUS decision, estimates of sales taxes lost to sellers outside of a jurisdiction run between $8 billion and $33 billion annually. As Senator Dirksen once said, “A billion here and a billion there … soon you’re talking about real money.” Clearly there has been definite support from tax collection jurisdictions for the current ruling.

As evidence of anticipation and desire for the change, many states had already passed laws to trigger tax collection when and if the Supreme Court decided as it did. That means that companies selling into these states are immediately subject to compliance. Again, small businesses will bear the brunt of the need to comply now or run the risk of audits, fines or a decision to withdraw from selling in certain states.

Tax Jurisdictions

The U. S. Congress

Many major online retailers have joined with small business groups to clarify the SCOTUS ruling and provide a framework that will both defend small businesses while providing uniformity and consistency for all online players regardless of size.

Congress has the authority to resolve the issue of online sales tax fairness, and create a solution that’s uniform across the country. That said it has failed to do so despite repeated introductions of legislation by members of Congress to resolve the issue. Congress’s most robust effort was the Marketplace Fairness Act, which was introduced in the Senate in 2013 and would have authorized states that had met standards for simplified sales tax rules to require large online and catalog retailers to collect sales taxes … notably with significant exemptions to protect small businesses. The Senate passed the MFA with a bipartisan vote of 69 to 27, but it was never brought to a vote in the House.

With this recent SCOTUS ruling and pressure building from the online selling community, perhaps this will be the year when the MFA is reconsidered and passed in some final form that clarifies the current confusion.

Takeaways

Our crystal ball is as cloudy as anyone else’s, but we’re convinced of two things:

  • It is likely with the current change as desired by larger online sellers and the potential financial burdens it imposes on the smaller players, Congress will act to resolve the inequities while maintaining a fair and just commercial climate for all.
  • Consumers will not be fazed by an added sales tax. They are used to it when going to a bricks-and-mortar store and the convenience plus savings in time and money will continue to accelerate online sales initiated by consumers.

 

 

27 Apr 2018
Health Coverage
News, Tax Law Pearson & Co, PC 0 comment

QSEHRA: NOT A WORD … AN ACRONYM

QSEHRA: NOT A WORD … AN ACRONYM
Health Benefit Option for Employers with 50 or Fewer Employees

Health Coverage

 

If you are an employer with 50 or fewer employees and have not heard of or participated in QSEHRA, this article is for you. First let’s flesh out the acronym QSEHRA … Qualified Small Employer Health Reimbursement Arrangements.

In straightforward terms, these plans allow small employers to reimburse employees to help pay for medical expenses … including individual insurance premiums. Reimbursed expenses are tax deductible to the employer and received tax-free by employees.

Note: QSEHRA is welcome news for employers that offered Health Reimbursement Arrangements (HRAs) prior to health care reform legislation which significantly restricted the use of such plans with heavy penalties imposed for violations. QSEHRAs are an exception to the Patient Protection and Affordable Care Act (PPACA) of 2010 HRA requirements.

Since the QSEHRA benefit was passed in December 2016 as part of the 21st Century Cures Act, literally thousands of businesses now offer these plans across the country. Notably, a majority of companies that chose this route did so to offer employee health benefits for the first time.

Reception by participating employees has been noteworthy with employees using nearly 80 percent of the tax-free money available to them through plans in 2017.

Small business decision-makers are particularly attracted to QSEHRA. The average employee count by companies adopting a plan in 2017 was six. That would indicate that many, if not most of these companies are least likely to afford traditional group health benefits. QSEHRA offers an appealing and affordable option.

As you likely suspect, there are requirements and limitations that apply to both employers and employees under the QSEHRA regulations. Here’s a brief rundown.

Employers

  • With 50 or fewer employees qualify if not considered an Applicable Larger Employer (ALE) under the PPACA.
  • The employer does not offer a group health plan.
  • Reimbursements in 2018 are limited to $5,050 for single coverage and $10,250 for family coverage.
  • The plan must be offered to all employees under the same terms with few exceptions.
  • Notifications to employees of their participation requirements.

Employees

  • Must demonstrate they have minimum essential coverage through another source as required by the PPACA.
  • Reduce their premium tax credit by the monthly reimbursement received from their company if the allowance doesn’t comply with the PPACA definition of “affordable coverage.”

Summary

QSEHRAs provide a valuable benefit to employers in attracting and retaining quality talent. Additionally, employees may enjoy tax-free dollars as reimbursement for medical expenses for themselves and their families. That said there are requirements that must be maintained by employers adopting these plans, with significant negative tax consequences for non-compliance. Business owners be sure to seek assistance from a tax professional.

This article is meant as a summary of the QSEHRA provisions. There is more to the story, especially as it may apply to your specific circumstances.

As ever, Pearson & Co stands ready to help you determine the applicability of QSEHRA for your company. A call or an email will be met with a rapid response!

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