Category Archives: Blog

Sales Tax After Wayfair: How Will it Affect Your Business?

December 9, 2019

If your business sells its products or services across state lines, the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair may have a significant impact on your sales tax obligations. Previously, states could not require out-of-state sellers to collect sales tax unless they had a physical presence in the state, such as retail outlets, offices, employees, manufacturing facilities, or distribution centers.

In Wayfair, the Court ruled that even a “virtual” presence is enough. The South Dakota law reviewed in that case applies the state’s sales tax laws to sellers that 1) deliver more than $100,000 in goods or services into the state annually, or 2) engage in 200 or more separate transactions for the delivery of goods or services into the state. According to the Court, this level of activity is sufficient to demonstrate that “the seller availed itself of the substantial privilege of carrying on business in South Dakota” and, therefore, is within reach of the state’s sales tax laws.

What Does This Mean for Your Business?

The Wayfair decision doesn’t necessarily require you to begin collecting sales tax from customers in every state in which you sell your products or services. Your obligations in a particular state depend on whether 1) the state has passed a law similar to South Dakota’s, and 2) your business’s sales in the state exceed applicable thresholds. Note, however, that in the wake of Wayfair, most states have passed such laws or are considering them.

Even if you don’t do business in other states, Wayfair may have an impact on your purchases of equipment, materials, or supplies from out-of-state sellers. Why? Because if your state has passed a law imposing sales tax obligations on sellers without a physical presence in the state, your out-of-state vendors may begin collecting sales tax from you. And if your purchases qualify for a sales tax exemption — such as a manufacturing or resale exemption — then you’ll need to present your vendors with an exemption certificate in order to avoid the tax.

Next Steps

All businesses should review their interstate sales and purchases to determine whether their sales tax obligations have changed as a result of Wayfair. If you do business in states that have expanded the reach of their sales taxes, pay attention to the effective or enforcement dates of any applicable laws to ensure that your business complies with them on a timely basis. If that date has already passed, investigate whether the state offers voluntary disclosure agreements or other procedures for limiting your liability for past sales.

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Charitable IRA Rollover Eases Tax Pain of RMDs

December 3, 2019

One downside of contributing to a traditional IRA is that, once you reach age 70½, you must begin taking required minimum distributions (RMDs) — and pay taxes on those distributions — whether you need the money or not. But if you’re charitably inclined, you can use a qualified charitable distribution (QCD) to avoid taxes on up to $100,000 in RMDs per year.

Also known as a “charitable IRA rollover,” a QCD is a direct transfer from your IRA to an eligible charity. It counts as a distribution for RMD purposes, but it’s excluded from your income. And it has certain tax advantages over traditional charitable contributions.

Advantage of QCDs over Ordinary Donations

When you receive an RMD, it is taxable to the extent it’s attributable to deductible contributions and earnings on those contributions. (Amounts attributable to nondeductible contributions are tax-free.)

One strategy for reducing these taxes is to donate the taxable portion (or an equivalent amount) to charity. If the donation is fully deductible, it will offset the taxable income that’s generated by the distribution. Depending on your tax situation, however, this strategy may be less effective than a QCD:

• A charitable deduction will benefit you only if you itemize. And that’s less likely now that the Tax Cuts and Jobs Act (TCJA) has nearly doubled the standard deduction.
• Even if you itemize, adjusted gross income (AGI) limits may reduce your charitable deductions. For instance, deductions for cash gifts to public charities are currently limited to 60% of AGI.
• By boosting your income, IRA distributions may trigger AGI-based rules that punch up certain taxes or deflate the benefits of certain tax breaks.

A QCD avoids these issues because it bypasses your income altogether. It allows you to take the equivalent of a charitable deduction — regardless of your income level or whether you itemize — and it won’t increase your AGI. Another advantage of QCDs is that they’re deemed to come from the taxable portion of your IRA first, increasing the portion of the remaining balance that’s nontaxable.

QCD Requirements

If you’re considering a QCD, you must meet several requirements:

• You must be at least 70½ at the time of the distribution. (Reaching that age during the tax year isn’t enough.)

• The IRA must distribute the funds directly to an eligible charity — generally, a public charity, private operating foundation or “conduit” private foundation.

• The donation must be “otherwise deductible.” In other words, it would have been fully deductible (disregarding AGI limits) had you funded it with non-IRA assets. If you receive something of value in exchange for your gift (tickets to an event, for example), it’s not a QCD.

• The distribution must be “otherwise taxable.” It’s not a QCD to the extent it would be tax-free if distributed to you directly.

In addition, QCDs are subject to the same substantiation requirements as other charitable donations.

A Tax-Efficient Strategy

If you don’t need your IRA funds for living expenses and you plan to donate to charity anyway, a QCD offers a tax-efficient strategy for satisfying your RMD requirements. The TCJA may enhance the advantages of QCDs because it increased standard deduction amounts, but keep in mind that these amounts are scheduled to return to their previous levels in 2026. Contact us for help determining the best RMD and charitable giving strategies for you.

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QuickBooks Payroll Users Alert – EFTPS Password Security Requirements Effective October 24, 2019

November 5, 2019

The Electronic Federal Tax Payment System (EFTPS) implemented new password security requirements effective October 24, 2019. If you are using EFTPS for federal payroll or income tax payments the new security requirements for internet passwords are listed below:

? Passwords need to be 12 – 30 characters long
? Passwords will expire after 13 months
? Passwords must contain at least 1 uppercase alpha character, 1 lowercase alpha character, 1 numeral, and 1 of the following special characters ! @ # $ * + –

You must log in to www.eftps.gov and change your password if you have not changed your EFTPS password in over 13 months or if your password does not meet these new requirements. You must wait 1 hour after updating your password before submitting any tax payments.

QuickBooks online users should have their new password sync automatically. QuickBooks desktop users will have to enter the new EFTPS password in QuickBooks. If you have any questions or trouble updating your EFTPS password, you can contact one of our staff members to assist you.

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