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6 posts from March 2016


Internet Sales Tax Still on the Burner

The use of the Internet can no longer be taxed, but the debate over taxing what is purchased over the Internet remains heated and unsettled.

The Permanent Internet Tax Freedom Act, signed into law in February, permanently bans any state and local taxes on Internet access. The measure also prohibits taxes on Internet-related digital goods and services, thereby ending nearly 20 debate and moratorium extensions on the matter.

Seven states that had been allowed to temporarily charge an access tax due to a grandfather clause must now phase out those taxes by 2020. The states include Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas and Wisconsin.

Sales tax calculatorSupporters of the new law say it will guarantee Americans will never have to pay taxes on the service that connects them to the Internet. Federal Communications Commissioner Ajit Pai has put it this way, “Americans need and want the certainty that the digital world will be spared the taxman.”

While Internet connection and operation services can no longer be charged access taxes, most states continue to push for a variety of sales taxes on Internet purchases. Arguments are that the taxes will protect brick-and-mortar businesses from unfair competition. The most recent legislation on this sales taxes issue is called the Marketplace Fairness Act.

The Marketplace Fairness Act would enable states to not only collect sales taxes on Internet purchases but to also impose taxes specifically on remote retailers who have no physical presence in their state. The act requires states to adopt simplified sales tax laws.

As debate has dragged on for years, technology has improved, making it much easier to track online purchases across state lines and then assess and collect sales taxes. Dozens of states are seeking to impose sales taxes on Internet purchases made within their borders. This would subject an online purchase to the same state and local taxes a product or service would have been charged at a local store. Some states are debating proposals that would tax third-party delivery services, targeting major online retailers who use regional shipping centers with massive inventories.

While purchasing tax-free products online provides an immediate cost savings for consumers, supporters of online taxes say the long-term effects of tax-free purchases are painful and deep. They argue that sales taxes generally range between 5 to 10 percent. Local businesses must impose and collect them from customers, so they suffer a 5 to10 percent price disadvantage to Internet retailers who are not required to collect sales taxes. The effects on business range from suffering lower profits to being forced out of business. Internet sales tax proponents say it’s not about supporting taxes in general, but rather about ensuring local job and business growth.

Currently, there is no uniform way to confirm the quantity and scope of tax-free online sales, which makes it difficult to accurately predict sales tax revenues for local and state budget planning. Meanwhile, the ban on Internet access and use taxes will cost states that are currently imposing some type of user fee an estimated $561 million annually. It’s expected that these states will step up their push for sales taxes to make up the difference, but there’s no agreement on the most effective tax rate.

Those who oppose online sales taxes say it’s all about grabbing more tax revenues to facilitate bigger government. They claim taxes charged on out-of-state purchases force those companies to collect taxes without representation. There is also concern that the federal government would enact a law compelling all states to collect a set rate rather than allowing each state to determine its own tax formula.

Some economists add that competition provides the best products at the best prices. They point out that the Internet and sophisticated transportation networks now allow for better consumer choices than ever before and that business is growing. They say sales taxes on those choices would be like an artificial and unnecessary price increase that would affect jobs and economies negatively.


Free Tax Help and Exclusions for Military

American military on dutyThe Volunteer Income Tax Assistance (VITA) program is offering free tax help to members of the military and their families.  The assistance is available both on and off base, including sites located overseas.

VITA provides tax help through staff that has been specially trained to handle military-related tax issues.  Some of those issues include tax benefits for serving in a combat zone, unique tax filing and payment deadlines based on service status, child and dependent card tax credits and military-specific Earned Income Tax Credit (EITC) rules.

When things are more dangerous, there are income tax benefits.  Serving in a combat zone or in an area  where imminent danger exists qualifies a service member for income tax exclusions on extra income they receive.

This applies on a monthly income basis, so any pay received during any part of a month of service in a combat zone may be excluded.  The combat pay exclusion for commissioned officers is capped at the highest enlisted pay, including any hostile fire or imminent danger pay received.

When an enlisted person serving in a combat zone decides to reenlist, that person receives a reenlistment bonus.  That bonus is also excluded from gross income if it is received when the person was serving in a combat zone.

Income received outside a combat zone is not excluded from income unless the pay is designated as Imminent Danger Pay (IDP) and Hostile Fire Pay (HFP). It is extra pay to personnel who serve in an area to provide direct support of military operations in a combat zone or an area that is designated as particularly dangerous.  The Department of Defense lists those particular areas and the time for which the hostile fire pay is issued.

Military duty in areas of the world that have extremely low quality of life, or QoL, may qualify for QoL extra pay, but that extra income may not be excluded from income tax.

If a service member is hospitalized by an injury or serious illness while serving in a combat zone or IDP, their income is not subjected to tax for the duration of their hospitalization up to two years.  Disability benefits and other kinds of income related to a service member’s injuries or illness may also receive specialized tax treatment. 

While no areas are listed as designated current combat pay zones so far this year, there are dozens of locations in the world designated as Imminent Danger Pay Areas.  Each service branch is responsible for certifying a person’s entitlement to the military pay exclusion on the Form-W2 that is submitted to the IRS.

The current IDP rate is $7.50 per day, with a maximum of $225 per month.  You can imagine how helpful it is for that extra pay for serving under extreme risk to be protected from income tax.  This kind of hazardous duty pay has been a heated debate topic for many years as America’s armed forces have been stretched across the globe into many hostile areas and the Department of Defense struggles with budget cuts.

All of these military tax programs and more are overseen by the Armed Forces Tax Council (ATFC) which provides worldwide assistance to military personnel.  If you have questions about this or past tax years and your ability to qualify for military service-related tax exclusions or credits, contact us at McRuer CPAs for more information.


Quick Tip To Watch For Social Security Fraud

my Social Security

Whether you receive Social Security benefits or not, you may want to make a habit of checking your Social Security Statement at least once a year.  Think about it: Are you sure no one else is using your Social Security number?

Create a “my Social Security account to watch out for:

  • Identity Theft
  • Tax-Related Fraud
  • Benefits Fraud

Go to this link to sign up:  https://www.socialsecurity.gov/myaccount/ 


State-Managed Retirement Savings Accounts Now in 27 States

Retirement jar 1Several states are working on plans to help workers save for retirement. The Bureau of Labor Statistics shows that only about half of full-time workers employed by small businesses or organizations have access to an employer-based retirement plan. By comparison, the numbers show 85 percent of Americans who work for employers with 100 or more employees do have access to an employer-provided retirement plan or benefits program.

To help close the gap, some states are providing access for eligible workers to state-managed individual retirement accounts funded by automatic deductions from the worker’s paychecks.  For example, in 2017 Illinois will launch the Secure Choice Retirement Savings Program, which gives workers a retirement plan option. Full-time employees working for qualified businesses (who do not already provide retirement benefits) will be automatically enrolled into a direct deduction retirement savings plan with a minimum three percent deduction each paycheck.  The employee can choose to have more withheld or to opt out of the program entirely. The money is deposited into a Roth IRA.

The Pension Rights Center in Washington, DC has been monitoring the development of state-administered retirement plans for private-sector workers. It shows that currently 27 states have already approved or are debating proposals to launch state-based retirement plans including: Arizona, California, Colorado, Connecticut, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oregon, Rhode Island, Utah, Vermont, Virginia, Washington, West Virginia and Wisconsin.

Last September, the Government Accountability Office (GAO) published a report detailing how “half of private sector workers, especially those who are low-income or employed by small firms, lack coverage from a workplace retirement savings program primarily because they do not have access.” The GAO is recommending ways that the federal government can make it easier for states to manage such plans, while not placing a financial or administrative burden on small business.


Money Fights and Millennials

A new survey of Millennial couples says choices about finances are among the top reasons they argue. There are 80 million Millennials in the U.S. alone, and they are expected to be spending up to $200 billion annually by 2017. This is the reason business, political and social experts are keeping a close eye on their habits and lifestyle choices.

Millennials are the generation generally born in the mid 1980s and up to the early 2000s.  In a joint effort, the American Institute of CPAs (AICPA) and the Ad Council surveyed couples who were between 25 to 34 years of age, employed, and married or living with a partner.  The results revealed 88% say financial decisions cause tension. Of that number, 31% say they argue about money weekly, and 20% say they argue about finances daily.

Couple fight over moneyExperts define Millennials as racially diverse, sociable (especially active on social networks), community-minded, health conscious and more liberal politically. They are apt to spend money on higher-priced goods if the products or services are connected to a “good cause” or a “healthy standard.” The problem, the survey shows, is that while Millennials seem to enjoy discussing and supporting important issues with their dollars, they fail to share their feelings and habits about money with the person they are closest to and who would be the most affected. When asked, less than 50% said they had discussed finances in detail with their loved one before marriage.

Many Millennials today enter into long-term relationships already burdened with high monthly expenses connected to credit card bills and higher education loans. Even though the survey results showed nearly half of the couples paid an equal share of household expenses, the couples said their partner had different financial habits and debt issues that made saving difficult.

The National CPA Financial Literacy Commission warns Millennials that greater spending power comes with a greater responsibility to understand a potential partner’s financial values and beliefs. A news release emphasizes, “We encourage couples to have a serious conversation about their financial hopes and dreams and the steps they need to take to get there.”

The AICPA features a “Feed the Pig” website that provides tips for Millennial couples to help them think beyond the honeymoon phase to daily money matters. If you are thinking about getting married or want to confirm financial choices to build a better financial future as a couple, contact us at McRuer CPAs.


Kids and Tax Breaks: The "Perfect" Match

If you have kids, you have tax breaks, maybe more than you know. In 2015, Congress passed “Tax Extenders” legislation and within it were three permanent extensions related to children. These tax breaks are out there to be taken, so we are providing a summary version to help you determine if you can use them.

The $1,000 child tax credit that so many taxpayers claim, and even count on, is not going to reduce or disappear. Having survived through extensions since the amount was set in 2003, it will now always be $1,000 per child.

My Family_jpgIt will help to know the following information for the next child-related benefit:  A 2009 refundable credit of 15% of earned income in excess of $3,000 was slated to jump to a qualifying amount of $10,000 in 2017.  Not any more—the $3,000 threshold has also been made permanent, providing extra help for millions of families.

Have kids in college? Once again there’s “forever” help, as related credits have been ensured and thresholds lowered through the Enhanced American Opportunity Tax Credit extension. Taxpayers can count on a $2,500 tax credit for four years of post-secondary education, instead of the $1,800 credit that would have taken place in 2017. Lower qualifying thresholds would have also happened in 2017, and now they will stay at $80,000 (single) and $160,000 (married, filing jointly).

And, did you know that there are other child credits in the tax system that you might qualify for like child and dependent care expenses and even summer day camps? If you didn’t, be assured that we do and are ready to help you see if you qualify.

If you need more information, please contact one of our tax preparation experts at McRuer CPAs.

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