Our Office will be closed Nov.21 – Nov.25 in observance of Thanksgiving. We will return to regular business hours on Monday, Nov. 28.
Our Office will be closed Nov.21 – Nov.25 in observance of Thanksgiving. We will return to regular business hours on Monday, Nov. 28.
President Trump is providing support to healthcare providers fighting the COVID-19 pandemic. On March 27, 2020, the President signed the bipartisan CARES Act that provides $100 billion in relief funds to hospitals and other healthcare providers on the front lines of the coronavirus response. This funding will be used to support healthcare-related expenses or lost revenue attributable to COVID-19 and to ensure uninsured Americans can get testing and treatment for COVID-19.
Recognizing the importance of delivering funds in a fast and transparent manner, $30 billion is being distributed immediately – with payments arriving via direct deposit beginning April 10, 2020 – to eligible providers throughout the American healthcare system. These are payments, not loans, to healthcare providers, and will not need to be repaid.
Yes. The CMS Accelerated and Advance Payment Program has delivered billions of dollars to healthcare providers to help ensure providers and suppliers have the resources needed to combat the pandemic. The CMS accelerated and advance payments are a loan that providers must pay back. Read more information from CMS.
All relief payments are being made to providers and according to their tax identification number (TIN). For example:
The Administration is working rapidly on targeted distributions that will focus on providers in areas particularly impacted by the COVID-19 outbreak, rural providers, providers of services with lower shares of Medicare reimbursement or who predominantly serve the Medicaid population, and providers requesting reimbursement for the treatment of uninsured Americans.
The Trump Administration is committed to ensuring that Americans are protected against financial obstacles that might prevent them from getting the testing and treatment they need from COVID-19.
SOURCE: https://www.hhs.gov/provider-relief/index.html; Content created by Assistant Secretary for Public Affairs (ASPA); Content last reviewed on April 13, 2020
Do you drive a heavy vehicle for work? It could lighten your tax load. If you’re a business owner, your SUV, pickup truck or van may be eligible for 100% first-year bonus depreciation. But it must:
See below for some business vehicles that can do the heavy lifting.
Other rules apply. Contact your trusted advisor for details.
Year-end tax planning will be just as complicated as it was last year due to the complexity of new tax regulations for businesses and individuals. This is of the essence as tax planning strategies to reduce your 2019 tax bill must be taken before year end.
Take advantage of planning strategies for individuals
Individuals often can reduce their tax bills by deferring income to the next year and accelerating deductible expenses into the current year. To defer income, for example, you might ask your employer to pay your year-end bonus in early 2020 rather than in 2019.
To accelerate deductions, consider increasing your IRA or qualified retirement plan contributions to the extent that they’ll be deductible. Such contributions also provide some planning flexibility because you can make 2019 contributions to IRAs, and certain other retirement plans, after the end of the year.
Other year-end tax planning strategies to consider include:
Offsetting capital gains. If you sold stocks or other investments at a gain this year — or plan to do so — consider offsetting those gains by selling some poorly performing investments at a loss.
Reducing capital gains is particularly important if you are subject to the net investment income tax (NIIT), which applies to taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for married couples filing jointly). The NIIT is an additional 3.8% tax on the lesser of 1) your net income from capital gains, dividends, taxable interest and certain other sources, or 2) the amount by which your MAGI exceeds the threshold.
In addition to reducing your net investment income by generating capital losses, you may have opportunities to bring your MAGI below the applicable NIIT threshold by deferring income or accelerating certain deductions.
Charitable giving. If you plan to make charitable donations, consider donating highly appreciated stock or other assets rather than cash. This strategy is particularly effective if you own appreciated stock you would like to sell but you don’t have any losses to offset the gains.
Donating stock to charity allows you to dispose of the stock without triggering capital gains taxes, while still claiming a charitable deduction. Then you can take the cash you’d planned to donate and reinvest it in other securities.
Contact your trusted advisor to discuss end of year planning for you and your business.
If your small business doesn’t offer its employees a retirement plan, you may want to consider a SIMPLE IRA. Offering a retirement plan can provide your business with valuable tax deductions and help attract and retain employees. For a variety of reasons, a SIMPLE IRA can be a particularly appealing option for small businesses. The deadline for setting one up for this year is October 1, 2019.
Unlike cash or credit cards, small businesses generally don’t accept bitcoin payments for routine transactions. However, a growing number of larger retailers and online businesses now accept payments. Businesses can also pay employees or independent contractors with virtual currency. The trend is expected to continue, so more small businesses may soon get on board.
As the employer, you can choose from two contribution options:
1. Make a “nonelective” contribution equal to 2% of compensation for all
eligible employees. You must make the contribution regardless of whether the
employee contributes. This applies to compensation up to the annual limit of
$275,000 for 2018 (annually adjusted for inflation).
2. Match employee contributions up to 3% of compensation. Here, you contribute only if the employee contributes. This isn’t subject to the annual compensation limit.
Employees are immediately 100% vested in all SIMPLE IRA contributions.
Employee contribution limits
Any employee who has compensation
of at least $5,000 in any prior two years and is reasonably expected to earn
$5,000 in the current year, can elect to have a percentage of compensation put
into a SIMPLE IRA.
SIMPLE IRAs offer greater income deferral
opportunities than ordinary IRAs, but lower limits than 401(k)s. An employee
may contribute up to $12,500 to a SIMPLE IRA in 2018. Employees age 50 or older
can also make a catch-up contribution of up to $3,000. This compares to $5,500
and $1,000, respectively, for ordinary IRAs, and to $18,500 and $6,000 for
A SIMPLE IRA might be a good choice for your small business, but it isn’t the only option. Contact your trusted advisor to learn more about a SIMPLE IRA or to hear about other retirement plan alternatives for your business.
Contact your trusted advisor with any questions.
A taxpayer’s annual tax liability is based on numerous personal circumstances and life events. For wage-earning taxpayers, federal income tax is paid when income is received via paycheck withholdings. In general, taxpayers are encouraged to update paycheck withholding allowances (Form W-4) to account for significant life changes (e.g., increase in wages, the number of dependents, changes in marital status).
Tax reform created an additional reason to review paycheck withholdings: Confirm how the new laws impact your personal circumstances and preferences.
Tax reform lowered and broadened income tax brackets, doubled the standard deduction and eliminated personal exemptions. The IRS subsequently updated income tax withholding tables, one of the guidelines employers use to determine how much to retain for taxes from employee paychecks. The amount withheld is further customized by an employee’s W-4.
In many cases, employer withholding amounts went down, enabling employees to enjoy slightly higher paychecks; yet many Americans left their W-4s unchanged. Consequently, many W-2 wage earners have found themselves under-withheld for the 2018 tax year. Fortunately, the
IRS waived the penalty for many taxpayers who paid at least 80% of their total tax liability.
The IRS shared that it is “especially important” that certain groups with more “complicated financial situations” should check their withholdings.
• Two-income families.
• People working two or more jobs or who only work for part of the year.
• People with children who claim credits such as the Child Tax Credit.
• People with older dependents, including children age 17 or older.
• People who itemized deductions in the prior tax year.
• People with high incomes and more complex tax returns.
• People with large tax refunds or large tax bills in the prior years.
It is important to note that receiving a refund or owing taxes does not indicate that your overall annual tax liability has increased or decreased. Your effective tax rate, or the percentage of your annual total income paid in federal income tax, often provides a clearer comparison.
Please consult with your tax professional to learn more about your specific tax rate and identify if adjustments should be made to your withholdings for the current tax year.
Article was updated on 3/22/19 to reflect the IRS expansion of the penalty waiver.
The Tax Cuts and Jobs Act (TCJA) initially seemed to eliminate the popular meal expense deduction for businesses in some situations. The IRS has since issued transitional guidance — while it works on proposed regulations — that confirms the deduction remains allowable in certain circumstances and clarifies when businesses can claim it.
The need for guidance
Before the TCJA, the tax code generally prohibited deductions for expenses related to entertainment, amusement or recreation (commonly referred to as entertainment expenses). It provided exceptions, though, for entertainment expenses “directly related” to or “associated” with conducting business.
The code further limited deductions for food and beverage expenses that satisfied one of the exceptions. A deduction was allowed only if 1) the expense was not lavish or extravagant under the circumstances, and 2) the taxpayer (or an employee of the taxpayer) was present when the food or beverages were furnished. The amount of the deduction was limited to 50%.
Tax reform revised the tax code to disallow a deduction for expenses related to entertainment expenses, regardless of whether they are directly related to or associated with conducting business. Some taxpayers interpreted the amendment to ban deductions for business meal expenses as though they were deemed to be entertainment expenses. According to the new guidance, though, the law does not specifically eliminate all of these expenses.
Rather, the law merely repeals the two exceptions and amends the 50% limitation to remove the reference to entertainment expenses. The TCJA does not address the circumstances in which providing food and beverages might constitute nondeductible entertainment, the IRS says, but its legislative history “clarifies that taxpayers generally may continue to deduct 50% of the food and beverage expenses associated with operating their trade or business.”
Until the IRS publishes its proposed regulations explaining when business meal expenses are nondeductible entertainment expenses and when they are 50% deductible expenses, businesses may deduct 50% of business meal amounts if:
The IRS recognized that the fifth criterion above could create some confusion. The guidance, therefore, includes illustrative examples.
In the first example, a taxpayer invites a business contact to a baseball game, paying for both tickets. While at the game, the taxpayer also pays for hot dogs and drinks. The game is entertainment, so the cost of the tickets is a nondeductible entertainment expense. However, the cost of the hot dogs and drinks, purchased separately from the tickets, isn’t an entertainment expense. Therefore, the taxpayer can deduct 50% of the cost as a meal expense.
The second example employs a similar scenario, with the taxpayer inviting a contact to a basketball game. This time, though, the taxpayer buys tickets to watch the game from a suite, with access to food and beverages included. The game again represents entertainment, and the cost of the tickets is nondeductible. The cost of the food and beverages is not stated separately on the invoice, rendering it a disallowed entertainment expense, as well.
The final example uses the scenario above, except that the cost of the food and beverages is stated separately on the invoice for the basketball game tickets. The cost of the tickets remains nondeductible, but the taxpayer can deduct 50% of the cost of the food and beverages.
TCJA does not change the definition of “entertainment.” Under the applicable regulations, the term continues to include, for example, entertaining at:
Entertainment also includes hunting, fishing, vacation and similar trips. It may include providing food and beverages, a hotel suite or an automobile to a customer or the customer’s family.
Be aware that the determination of whether an activity is entertainment considers the taxpayer’s business. For example, a ticket to a play normally would be deemed entertainment. If the taxpayer is a theater critic, however, it would not. Similarly, a fashion show would not be considered entertainment if conducted by an apparel manufacturer to introduce its new clothing line to a group of store buyers.
Request for comments
The IRS has requested comments on future guidance clarifying the treatment of business meal expenses and entertainment expenses, including input on whether and what additional guidance is required and the definition of “entertainment.” Businesses should submit comments to the IRS by December 2, 2018. If you have questions on how this guidance may affect your business, contact your tax professional.
For tax years beginning in 2018 and beyond, the Tax Cuts and Jobs Act (TCJA) created a flat 21% federal income tax rate for C corporations. Under prior law, C corporations were taxed at rates as high as 35%. The TCJA also reduced individual income tax rates, which apply to sole proprietorships and pass-through entities, including partnerships, S corporations, and, typically, limited liability companies (LLCs). The top rate, however, dropped only slightly, from 39.6% to 37%.
On the surface, that may make choosing C corporation structure seem like a no-brainer, but there are many other considerations involved.
Under prior tax law, conventional wisdom was that most small businesses should be set up as sole proprietorships or pass-through entities to avoid the double taxation of C corporations: C corporations pay entity-level income tax and then shareholders pay tax on dividends — and on capital gains when they sell the stock. For pass-through entities, there is no federal income tax at the entity level.
Although C corporations are still potentially subject to double taxation under the TCJA, their new 21% tax rate helps make up for it. This issue is further complicated, however, by another provision of the TCJA that allows noncorporate owners of pass-through entities to take a deduction equal to as much as 20% of qualified business income (QBI), subject to various limits. But, unless Congress extends it, the break is available only for tax years beginning in 2018 through 2025.
No one-size-fits-all answer applies when deciding how to structure a business. The best choice depends on your business’s unique situation and your situation as an owner. Your tax adviser can help you evaluate your options.
In a much-anticipated ruling that confounded the expectations of many court watchers, the U.S. Supreme Court has given state and local governments the green light to impose sales taxes on out-of-state online sales. The 5-4 decision in South Dakota v. Wayfair, Inc. was met by cheers from brick-and-mortar retailers, who have long believed that the high court’s previous rulings on the issue disadvantaged them, as well as state governments that are eager to replenish their coffers.
The previous rulings
The Supreme Court’s holding in Wayfair overruled two of its precedents. In its 1967 ruling in National Bellas Hess v. Dept. of Revenue, the Court tackled a challenge to an Illinois tax that required out-of-state retailers to collect and remit taxes on sales made to consumers who purchased goods for use within the state.
That case involved a mail-order company. The high court found that, since the company’s only connection with customers in Illinois was by “common carrier” or the U.S. mail, it lacked the requisite minimum contacts with the state required by the Due Process and Commerce Clauses of the U.S. Constitution to impose taxes. It held that the state could require a retailer to collect a local use tax only if the retailer maintained a physical presence, such as retail outlets, solicitors or property in the jurisdiction.
Twenty-five years later, in Quill Corp. v. North Dakota, the Supreme Court reconsidered the so-called physical presence rule in another case involving mail-order sales. Although it overruled its earlier due process holding, it upheld the Commerce Clause holding. The Court based its ruling on the Commerce Clause principle that prohibits state taxes unless they apply to an activity with a “substantial nexus” — or connection — with the state.
Criticism of the physical presence rule
The rule, established in Bellas Hess and affirmed in Quill, has been the subject of extensive criticism. This has been particularly true in recent years as traditional stores have lost significant ground to online sellers. In 1992, the Court noted that mail-order sales in the United States totaled $180 billion, while in 2017 online retail sales were estimated at $453.5 billion. Online sales represented almost 9% of total U.S. retail sales last year.
It is estimated that states lose $8 billion to $33 billion in annual sales tax revenues because of the physical presence rule. States with no income tax, such as South Dakota, have been especially hard hit. South Dakota’s losses are estimated at $48 million to $58 million annually.
The sales tax at issue
In response to the rise in online sales and the corresponding effect on sales tax collections, South Dakota enacted a law requiring out-of-state retailers that made at least 200 sales or sales totaling at least $100,000 in the state to collect and remit a 4.5% sales tax. The 2016 law also included a clause declaring an emergency in light of the need “for the support of state government and its existing public institutions …”
South Dakota subsequently sued several online retailers with no employees or real estate in the state. It sought a declaration that the sales tax was valid and applicable to the retailers, along with an injunction requiring the retailers to register for licenses to collect and remit the tax. A trial court dismissed the case before trial, and the State Supreme Court affirmed, citing its obligation to follow U.S. Supreme Court precedent, however persuasive the state’s arguments against the physical presence rule might prove.
The Supreme Court’s reasoning
The majority opinion — penned by Justice Kennedy but joined by the unusual mix of Justices Thomas, Ginsburg, Alito and Gorsuch. It described the physical presence rule as “unsound and incorrect.” According to the Court, the rule becomes further removed from economic reality every year.
Quill, the opinion said, creates market distortions. It puts local businesses and many interstate businesses with a physical presence at a competitive disadvantage compared with remote sellers that need not charge customers for taxes. Kennedy wrote that the earlier ruling “has come to serve as a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a State’s consumers — something that has become easier and more prevalent as technology has advanced.”
In addition, the Court found that Quill treats economically identical actors differently for arbitrary reasons. A business with a few items of inventory in a small warehouse in a state is subject to the tax on all of its sales in the state, while a seller with a pervasive online presence but no physical presence is not subject to the same tax for the sales of the same items.
Ultimately, the Supreme Court concluded that the South Dakota tax satisfies the substantial nexus requirement. Such a nexus is established when the taxpayer “avails itself of the substantial privilege of carrying on business” in the jurisdiction. The quantity of business the law required to trigger the tax could not occur unless a seller has availed itself of that substantial privilege.
Of course, as the Court acknowledged, the substantial nexus requirement is not the only principle in the Commerce Clause doctrine that can invalidate a state tax. The other principles were not argued in this case, but the high court observed that South Dakota’s tax system included several features that seem designed to prevent discrimination against or undue burdens on interstate commerce, such as a prohibition against retroactive application and a safe harbor for taxpayers who do only limited business in the state.
The significance of the Supreme Court’s ruling was felt almost immediately in the business world, with the share prices of major online retailers quickly dropping (even those that do collect and remit sales taxes). It is not just the behemoths that could be affected, though.
The Court recognized that the burdens of nationwide sales tax collection could pose “legitimate concerns in some instances, particularly for small businesses that make a small volume of sales to customers in many States.” But, it said, reasonably priced software eventually may make it easier for small businesses to cope. The ruling also pointed out that, in this case, the law “affords small merchants a reasonable degree of protection,” such as annual sales thresholds.
Further, the Court noted, South Dakota is one of more than 20 states that are members of the Streamlined Sales and Use Tax Agreement (SSUTA). These states have adopted conforming legislation that provides uniform tax administration and definitions of taxable goods and services, simplified tax rate structures and other uniform rules. Colorado does not participate.
Closer to Home
Colorado has an incredibly complex sales and use tax system, with over 300 jurisdictions that impose and administer tax, including home-rule cities, or cities who collect their own sales tax. Business owners can learn more by reviewing Colorado’s Sales and Use Tax General Information and Reference Guide; however, confirming your tax liability with your CPA is recommended.
In light of the Supreme Court’s decision, states may need to revise or enact legislation to meet the relevant constitutional tests — including, but not limited to, the substantial nexus requirement. If you have questions regarding sales tax collection requirements for your business, please contact your business adviser.
November 9 was a busy day in Washington for lawmakers in their race to create a tax reform package. The House Ways and Means Committee made amendments to, and approved, the Tax Cuts and Jobs Act. And the Senate Finance Committee released “policy highlights” for its proposed version of a tax plan.
Many of the House and Senate provisions are similar. For example, both plans would repeal the alternative minimum tax and retain the charitable contribution deduction. However, there are a number of key differences. Here is a high-level comparison of the House and the Senate tax bill proposals:
The following changes would generally be effective beginning in 2018:
These changes also would generally be effective beginning in 2018, but be sure to note the exceptions:
Despite all of the proposed tax reform activity, there is still a long way to go before a law is passed. The full House of Representatives plans to vote on its bill as early as this week, according to Republican leaders. Senate Finance Committee members said they will make revisions to their plan in coming weeks before crafting a formal bill to be submitted for a full Senate vote.
The House and Senate must reconcile their differences into a single bill that Republican lawmakers hope to vote on before Christmas so that President Trump can sign it by December 31. Meanwhile, lobbyists and special interest groups, as well as taxpayers, will continue to weigh in, and some Republican lawmakers have already expressed opposition to parts of the proposals.
With the significant differences between the House and Senate plans, it remains to be seen whether they will craft a unified bill that can be passed by both chambers by the end of the year.
The SKR+CO tax team is actively monitoring tax reform proposals and will continue to provide updates as new information becomes available.
Whether you filed your 2016 tax return by the April 18 deadline or you filed for an extension, you may be overwhelmed by the amount of documentation involved. While you need to hold on to all of your 2016 tax records for now, it is a great time to take a look at your records from previous tax years to see what you can purge.
Consider the statute of limitations
At minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. However, it may be extended to six years when there is a substantial understatement or omission. To be safe, we recommend keeping records for seven years.
Keep some documents longer
You will need to keep certain records beyond the statute of limitations:
This is only a sampling of retention guidelines for tax-related documents. Please see our record retention schedule to create a personalized plan or contact your business advisor.