September 15, 2008
Understand your sales and use tax obligations
Are you keeping up with your business's sales and use tax responsibilities?

If it's been a while since you reviewed your compliance procedures, now's a good time to schedule an assessment. As evidenced by the lawsuit Amazon filed against New York State, slowing tax collections are encouraging legislators to pursue additional revenue in this area.

What to do:

Review your sales. Generally, if you sell personal property such as books or toys in a state where you have a business presence, you need to collect and remit sales tax. (A business presence can mean owning property in a state or having employees there.)

In addition to tangible property, some states tax labor and services. Examples include New York, which taxes the sale of mailing and customer lists, and Pennsylvania, which taxes secretarial and editing services as well as employment agency services.

Another area to review:

If you're a shareholder renting office space to your company, you may be required to pay sales tax on the rent.

Check your purchases. Besides sales taxes, most states also collect use taxes. These taxes are typically due on purchases you make of taxable items when the seller does not collect the sales tax — say, for instance, a computer you buy online and use in your business.

If you think you have unexpected sales or use tax obligations, give us a call. We'll be happy to answer your questions, including what exemptions apply to your business and what voluntary disclosure or amnesty programs are available

Heroes Earnings Assistance and Relief Tax Act of 2008 signed by Bush

Attention military personnel and employers: In June, President Bush signed the Heroes Earnings Assistance and Relief Tax Act of 2008, which contains tax benefits for service members and others.

Here's an overview of some changes:

Economic stimulus payments. The Economic Stimulus Act, passed earlier in the year, required both you and your spouse to have valid social security numbers in order to receive a check from the government.

Under the new law, you'll be eligible for the stimulus payment if either of you has a valid social security number, as long as you or your spouse are active or reserve military and you file a joint tax return.

Earned income credit. The earned income credit, which can reduce your tax and possibly result in a refund even if you owe no tax, is based on total wages and similar income. Prior tax law provided a temporary benefit that let you elect to include tax-free combat pay in the calculation of the earned income credit.

The new law makes the benefit permanent.

Penalty-free retirement plan distributions. Amounts you take from your IRA, 401(k) or certain other qualified plans before retirement are generally subject to a 10% early withdrawal tax. However, a temporary special rule allowed an exception to the penalty if you're a military reservist and you're called to active duty for more than 179 days.

That rule is now permanent.

Access to flexible spending arrangements. When you participate in an employee benefit plan that lets you make pre-tax contributions for medical and other expenses, you're typically required to use the money in your account within a certain time period. If you don't, you forfeit the balance, under what's commonly called the "use it or lose it" rule.

Now, if you're a military reservist called to active duty after June 17, 2008, for at least 180 days, you're exempt from the use it or lose it rule.
The Act also made additional changes to retirement plans, created a credit for small employers who pay differential wages, and established new rules for expatriates. Contact us for details on these and other provisions

Late tax changes may delay filing

Caution: Tax filing "wait-state" ahead. Though wait-state is a term that is usually applied to the pause you notice when your computer waits for a task to finish, tax legislation signed late in 2007 may have a similar effect on your 2007 taxes — a delay in submitting your return to the IRS.

Here are the details:

The change: On December 26, 2007, President Bush signed a law increasing the alternative minimum tax (AMT) exemption. For 2007, the exemption is $66,250 if you're married filing jointly ($44,350 if you're single or file as head of household).

The law also affects the credits you apply against your AMT liability.

The problem: Filing may be delayed even if you're not subject to the AMT. That's because IRS computers require programming changes to process the new provisions correctly. In addition, the law was enacted after 2007 tax forms were printed, so you might have received forms and instructions with outdated information.

The result: You may have to wait to file your tax return until mid-February.

The specifics: You're affected if your return will include any of the following:

Hope or lifetime learning credits (Form 8863).
The nonbusiness energy property credit or the residential energy efficient property credit (Form 5695).
The credit for child and dependent care expenses (Form 1040A, Schedule 2).
The mortgage interest credit (Form 8396).
The District of Columbia first-time homebuyer credit (Form 8859).
All other forms, including the one used to calculate the AMT (Form 6251), have been updated.

2008 standard mileage rates released

If you use the IRS standard mileage rate to reimburse yourself or your employees for the business use of personal automobiles, it's time to update your calculation. Beginning January 1, 2008, the new rate for business driving is 50.5¢ a mile.

The standard rate takes the place of costs such as gas, oil, depreciation, licenses, maintenance, and tires. In most cases you can use the standard amount instead of keeping records of actual expenses. (If you're self-employed, you may want to track both mileage and expenses to determine which gives you a bigger deduction at year-end.

Remember to save receipts for parking fees and tolls, since they're not included in the standard rate and can by deducted in addition to the mileage rate. You'll also need to maintain a log showing the dates you use your car, truck, or van for business, where you go and the purpose of each trip. In addition, take time now to note your beginning-of-the-year odometer reading. That will make it easier to track the total miles you drive this year.

Another change to mileage rates: For 2008, the amount for deductible medical and moving mileage has been reduced to 19¢ a mile.

The rate for the charitable use of your vehicle remains the same at 14¢ per mile driven during 2008.

Here's a comparative summary of the standard rates per mile:

2008 2007
Business 50.5 cents 48.5 cents
Charitable 14 cents 14 cents
Medical/Moving 19 cents 20 cents

For answers to your questions about recordkeeping requirements and maximizing vehicle expense deductions, please give us a call.

Note the recordkeeping requirements for charitable contributions Are you drawing up your year-end charitable contributions list? After you check it twice, add a reminder to gather the paperwork required to claim a gift for yourself: an itemized tax deduction.

Here are four tips:

Remember the new rules for cash donations. You'll need a written record to deduct cash donations on your 2007 tax return, no matter what amount you donate. The record can be from the charity or, for donations under $250, in the form of a cancelled check, or credit card or bank statement.

If you contribute via payroll deduction, keep your paystub and documentation from the charity (a pledge card, for example).

Know when old rules still apply. If you donate $250 or more in money or property, ask for a receipt from the charity showing how much you contributed and any benefit you received in return.

Log vehicle expenses. Your record should indicate the charity's name, the dates you used your car, and either the actual cost of gas and oil or the number of miles you drove. Parking fees and tolls are also deductible, whether you claim actual costs or the standard mileage rate for charitable driving (14 cents for 2007).

Keep receipts for unreimbursed items. These include out-of-pocket costs directly related to charitable service, such as buying or cleaning uniforms used for your volunteer work. Additional recordkeeping rules may apply, depending on what you donate. For instance, some noncash contributions require an appraisal. Give us a call. We can review the records you need to obtain the maximum tax benefit.

Make some New Year tax resolutions

Expand your list of New Year resolutions to include the following:

1. Review and adjust your withholding.
   If you receive a big tax refund for 2005, resolve to file a new Form W-4 to adjust your withholding and reduce your refund to a reasonable size. It’s comforting to receive a small refund, but remember that a refund means you’re making an interest-free loan to the government — money you could be investing or using to your own benefit.
2. Maximize your tax-advantaged retirement savings.
   Resolve to contribute at least enough to your 401(k) plan to earn your employer’s match. Otherwise you’re giving up “free” money. If you can afford to contribute more to your retirement plan or to an IRA, do so. You’ll be glad you did in later years.
3. Review your investments quarterly.
   Resolve to review your investments regularly. Decide on investments to keep or sell, and rebalance your portfolio.
4. Set up an education plan.
   If you have children or grandchildren, resolve to meet with your tax advisor and establish a tax-advantaged plan to fund their education.
5. Keep better records.
   One secret of good tax planning is good recordkeeping. Resolve to set up a simple system to maintain essential records.
6. Update your estate plan.
   Resolve to update your estate plan this year. You’ll be surprised how quickly changes can occur. And remember that good estate planning includes more than just a will or living trust.
7. Take your tax preparer to lunch.
   Some time after April 15, go to lunch with your tax preparer. Take a copy of your return and review it line by line, discussing ideas for additional tax savings.

Contact us now to find out how we can help