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7 posts from January 2018


Online Sales Tax Debate Advances to Supreme Court

Interent Sales TaxThe U.S. Supreme Court has agreed to hear a case that may change the standard for how sales taxes are applied to online purchases.  In the case of South Dakota v. Wayfair Inc., the state will argue that all online sellers should be required to collect state sales taxes from South Dakota customers. It is one of only a few states that imposes taxes on all finished goods and services.  The case could set a precedent affecting all states and the District of Columbia.

Since 1992, a Supreme Court ruling (Quill v. North Dakota) has prevented states from collecting any sales tax from internet-related retail purchases unless the seller had a physical presence in the state where the sale transaction was conducted.  The case finding was based upon the idea that states should not interfere with interstate commerce.

The Tax Foundation’s Joe Bishop-Henchman writes that local businesses and states argue that they are unfairly losing revenues to retailers outside their jurisdiction.  He explains, “Traditional brick-and-mortar retailers that have to collect sales taxes feel they’re at a competitive disadvantage, and states are potentially losing out on billions of dollars in revenue annually.” 

On the other side of the issue, online retailers argue that each state may have different sales tax collection mandates that are often confusing, inefficiency in tracking collections, and expensive to comply with.

In this case, South Dakota is one of nearly two dozen states who are working together under the Streamlined Sales and Use Tax Agreement.  It is a voluntary governing board working to simplify and standardize sales tax rules.  At McRuer CPAs we have been helping clients navigate these issues since the advent of internet sales.  Unfortunately, their resolutions often reflect the one size fits all sales and use tax law requirements adopted years ago for a different time.

Arguments in the South Dakota v. Wayfair Inc. case are now set to be heard in April and may provide clarity on the constitutional limits of state taxing authorities and the scope and reach of the physical presence rule. 

8 Ways Tax Reform Affects You in 2018

Tax-ChangesAs we launch into the 2017 tax filing season we are receiving as many questions about the new Tax Cuts and Jobs Act and how it affects 2018 individual and business income taxes as we are about the best planning to file 2017 returns.  To that end, here we are highlighting the 8 most significant ways tax reform may affect you in 2018.  We will continue presenting additional information in the weeks ahead to help you best navigate your income tax planning.

Here are the eight tax change topics we receive the most questions about from both individual and business taxpayers:

  1. Individual income tax rates
  2. Personal exemptions
  3. Standard versus itemized deductions
  4. Child tax credits
  5. Mortgage interest
  6. Deducting state and local property taxes
  7. Estate tax
  8. Corporate income tax rate

Here is a short assessment of how tax reform has affected the eight tax topics compared to 2017 tax law.  These are generalized overviews of the tax law changes, so please keep in mind how they may apply your individual and/or business tax strategy may be different.

Individual income tax rates:  There were seven 2017 tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.  Though President Donald Trump had hoped for three tax brackets, the final 2018 tax reform law was passed with seven tax brackets:  10%, 12%, 22%, 24%, 32%, 35%, and 37%.  Businesses have received the new employee income tax withholding tables and the IRS is working on updating its online calculator for businesses and employees to estimate their income tax liability and how these changes affect their annual tax bill.

Personal exemptions:  The prior law allowed most taxpayers a $4,050 exemption for each household member.  Under the 2018 tax law, personal exemptions are eliminated.

Standard deduction:  The prior tax law allowed a standard deduction of up to $6,350 for single taxpayers and married couples filing separately, $12,700 for married couples filing jointly, and $9,350 for heads of households.  The new law increase the standard deduction to $12,000 for single taxpayers, $24,000 for married couples filing jointly, and $18,000 for heads of households.

Child tax credits:  The 2017 tax law allowed a $1,000 tax credit for each qualifying child under age 17.  Now that credit is increased to $2,000 per qualifying child, and up to $1,400 is refundable.  A $500 credit has been added temporarily for other qualifying dependents.

Mortgage interest:  The mortgage interest deduction formerly allowed homeowners to deduct interest on mortgages up to $1 million and home equity borrowing up to $100,000.  Under the new law, the borrowing threshold is $750,000 for mortgage borrowing after December 14, 2017.  Mortgages closed prior to that date still qualify for the $1 million limit.  Beginning in 2026 the $1 million limit will return, while the home equity borrowing interest deduction has been eliminated until 2026.

State and local property taxes:  Under the old law Taxpayers itemizing their deductions could deduct state and local real and personal property taxes, and either state and local income taxes or state and local sales taxes.  Under the new law, state and local taxes remain deductible but the combination of all state and local taxes are now capped at $10,000.

Estate tax:   Under the former rules, a 40% tax was levied on qualifying estates of more than $5.49 million per person, or nearly $11 million per married couple transferred upon their death.  The 2018 law increases the overall estate tax exemption to nearly $11 million per taxpayer.

Corporate tax rate:  Previously the tax rate charged on corporate income varied between 15% to 35% depending on the amount of annual taxable income for a flat rate of 35% on all corporate income beyond a certain income amount.  The new tax law simplifies the rate by reducing the maximum corporate income tax rate on all corporate income to 21%.

Though many taxpayers were disappointed that the tax code was not more significantly simplified, the Tax Cut and Jobs Act is the most significant tax reform this country has experienced in more than 30 years.

While these tax changes do NOT affect your current 2017 tax return, they will affect your 2018 tax plan.  Connecting with one of our experienced tax planning professionals will help you make the adjustments that may be needed in your overall tax strategy.  Contact us to learn more about how to make certain you pay only what you owe, no matter how tax reform may affect your bottom line.

Passports at Risk if Back Taxes Are Owed

American passport 2The IRS has announced it is implementing new procedures that link seriously delinquent tax debt to a taxpayer’s ability to apply for a new passport or request a renewal.  The new rule is part of the Fixing America’s Surface Transportation Act or FAST.  The FAST Act is a funding bill designed to find more tax revenue to pay for upgrading America’s roads, bridges and more.  The tax debt-related provision requires the Department of Treasury to notify the State Department of individual taxpayers who owe a major tax debt if that taxpayer has not attempted to pay what they owe.

A taxpayer with seriously delinquent tax debts is defined as a person who owes the IRS more than $51,000 in back taxes, including penalties and interest.  Taxpayers in the affected category should have already received a Notice of Federal Tax Lien from the IRS and have missed the deadline to challenge the notice, or enter into a payment agreement.

Under the law, if the State Department receives a notice about a seriously indebted taxpayer, it may only take action regarding the taxpayer’s passport application or deny a passport renewal.  Importantly, the new law does not require the Department of Homeland Security or any other agency to confiscate the taxpayer’s passport, should they be traveling.  Opponents of the new rule fear that it could lead to that action and, in time, the provision could be expanded to include taxpayers with less tax debt.

Affected taxpayers may avoid these passport issues if they take steps to resolve their tax liability either through an approved installment agreement, an accepted offer in compromise, a tax court settlement agreement, or if they are undergoing IRS due process.  Taxpayers with a large back taxes amount, but who are not affected by the new rule include taxpayers who:

  • are undergoing bankruptcy,
  • have proven they have a qualifying financial hardship,
  • live in a federally declared disaster area,
  • qualify as someone who is a victim of tax-related identity theft, or
  • have qualified for an innocent spouse election.

The IRS says it will postpone notifying the State Department about affected taxpayers who are serving in a military combat zone, so the individual’s passport renewal request is not subject to denial until they return to the United States.

Privacy advocates are concerned that the new rule allows too much information sharing between government agencies with different security controls over private individual information.  They fear it increases the risk of identity theft and fraud.  They also predict there may be long delays in passport renewals because of slow and sometimes inaccurate information-sharing practices between government agencies.

More IRS tools to collect back taxes from taxpayers are expected to emerge in the years ahead.  The best protection is for affected taxpayers to work out an agreement to pay as much as they can as soon as they can to avoid greater costs that stretch beyond their pocketbooks.

If you need more information, please contact us at McRuer CPAs.


2018 Income Tax Withholding Tables Now Confirmed

The IRS has released the updated 2018 federal income tax withholding tables reflecting the recent tax reform.  This is the first of several updates that will be released in the next few weeks.

The updated withholding information, now posted online (click here to view the new tables), shows the new rates for employers to use for computing employee withholding amounts.  Employers are requested to begin using the 2018 withholding tables as soon as possible, but not later than February 15, 2018. They should continue using the 2017 withholding tables until they have fully implemented the new 2018 withholding rules. Calculating pay and taxes

When employees will see the changes in their paychecks will vary depending on how quickly their employers implement the new tables, and how often they are paid — generally weekly, biweekly or monthly.  Most employees will begin seeing paycheck increases in February.

The new withholding tables are designed to work with the Forms W-4 that workers should have already filed with their employers to claim withholding allowances.  Employees do not have to do anything at this time.

Acting IRS Commissioner David Kautter says the IRS will be providing more information in the next several weeks to help employers and individuals understand and review the withholding changes and the other tax reform affecting payrolls and paychecks.  Kautter explains the new tax withholding tables are designed to produce the correct tax withholding amount for taxpayers with simpler tax situations.  He says the revisions are also aimed at avoiding income tax over- and under-withholding as much as possible.  Soon the IRS will release additional updated information for taxpayers with more complicated tax plans.

Meanwhile, the IRS is working on revising its online withholding tax calculator to reflect the new tax law data and expects the calculator will be available by the end of February.  A revised Form W-4  is also being developed.  Both the Form W-4 and the online calculator will estimate the effect of changes such as itemized deductions, child tax credit increases, the new dependent credit and the repeal of dependent exemptions. These tools may be used by employees wishing to update their withholding in response to new tax reform law, to reflect changes in their personal circumstances in 2018, and by workers starting a new job.

If you have any questions, please don’t hesitate to contact us at McRuer CPAs online or call us at 816.741.7882.

Premium Tax Credit Forms Deadline Extended for Employers and Insurance Providers

If you're an individual who qualifies for the Premium Tax Credit you are required to file information on your tax return about your coverage in order to claim the credit. The Premium Tax Credit is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace. To get this credit, you must meet certain requirements and file a tax return. Health coverage tax credit

This year, employers and health coverage providers have been given an additional 30 days to send you health coverage information forms.  You do not have to submit these forms with your tax return, but you do need to make certain that the numbers you claim on your return match the numbers submitted by your employer and health coverage provider should your filing be questioned by the IRS.

The IRS has extended the 2018 due date for certain employers and health coverage providers to furnish 2017 health coverage information forms to individuals. The following organizations now have until March 2, 2018, to provide Forms 1095-B or 1095-C to individuals:

  • Insurers
  • Self-insuring employers
  • Other coverage providers
  • Applicable large employers

The March 2nd date is a 30-day extension from the original due date of January 31st. These organizations must furnish statements to employees or covered individuals. The statements have information about the health care coverage offered or provided to the employees or covered individuals. The recipients may use this information to determine if they can claim the Premium Tax Credit on their individual income tax returns.

This 30-day extension is automatic. Employers and providers don’t have to request it. The due dates for filing 2017 information returns with the IRS are not extended. For 2018, the due dates to file information returns with the IRS are:

  • February 28 for paper filers
  • April 2 for electronic filers

Because of these extensions, individuals may not receive their Forms 1095-B or 1095-C by the time they are ready to file their 2017 individual income tax return. To be clear, while information on these forms may assist in preparing a return, taxpayers who wish to claim the Premium Tax Credit are not required to have these forms to file. Taxpayers can prepare and file their returns using other information resources about their health coverage. So, taxpayers do not have to wait for Forms 1095-B or 1095-C to file.

If you have any questions about how the updated deadline may affect you or your business, please don't hesitate to contact one of tax preparation specialists at McRuer CPAs online or by calling 816.741.7882. 


Tax Filing Season Starts January 29 for 2017 Tax Returns

Tax-DayThe IRS has announced that this year’s filing season will officially begin January 29th.  That is the first date that completed tax returns will be accepted by the IRS, though tax preparation may be completed before then so returns may be ready to submit on the first available day for processing.  The date is a bit later than the launch of the 2016 filing season, which began January 23rd.

The agency has been updating its systems since November to accommodate tax law changes for 2017.  Going forward, it's not yet clear how long it will take the IRS to adjust to the newly passed tax reform law that will implement major changes affecting individual and business income and other taxes in 2018.  Those tax reform changes do not affect your individual 2017 tax return.

The deadline to submit your 2017 individual federal and state income tax returns is April 17th this year.  The date is on the 17th of April because April 15th is a Sunday and April 16th is a holiday in the District of Columbia.

The IRS will not begin accepting federal income tax returns until January 29th.  It also reminds taxpayers that, by law, it cannot issue refunds related to claims for the earned income tax credit or the additional child tax credit until mid-February.

If you have any questions or need help with the preparation of your individual or business income tax returns, please contact us at McRuer CPAs online (click here) or by calling 816.741.7882.


Withholding Guidance for Small Business Coming Soon

Hand and calculatorThe IRS has released a short update to answer questions from small businesses about how soon they should implement changes from the newly approved tax reform bill.

Currently, the IRS says it plans to "issue the withholding guidance some time in January, and employers and payroll service providers will be encouraged to implement the changes in February."  The updated information is supposed to be designed to work with the existing Forms W-4 that employees have already filed.  This is to make certain no additional action by taxpaying employees will be needed regarding the amount of taxes that should be withheld for each individual.

The 2018 withholding guidelines should enable taxpayers to see changes from the tax reform bill reflected in their paychecks as early as February.  Until the new tables are released, employers and payroll service providers are asked to continue to use the 2017 withholding tables and systems.

If you have any questions, please don't hesitate to contact McRuer CPAs online or call us at 816.741.7882. 

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