Category Archives: Related News
Posted On: 10-12-2017 | Posted By: Jessica Lehmen
Columbia, Ashland, Harrisburg, and Boone County will ask voters on the November 7 ballot to consider imposing a local use tax. If the measure passes, local and city use taxes will be imposed on remote purchases made by residents of these areas, making those purchases subject to the same percentage of sales tax as in-store purchases. According to the Notice of Special Election posted on the Boone County Clerk’s website as of October 12, 2017, none of the other Boone County cities have added use tax questions to their ballots yet.
Background: How sales and use taxes work
As a starting point, it’s important to understand how sales and use taxes are assessed. Both taxes are based on retail sales of most tangible goods and some services. If there is a taxable purchase, either sales or use tax will apply, but not both. Sales and use tax apply to both individuals and businesses. There are exemptions for certain goods and for certain businesses, such as manufacturers. Please consult your WK advisor for issues related to specific exemptions.
Generally, a sales tax is collected by a Missouri seller at the time of the sale to a Missouri buyer. A use tax is collected either by the seller or the buyer. The seller collects use tax when they are making the sale from outside Missouri to a Missouri purchaser and the seller has nexus with Missouri. The buyer remits the use tax to the state when a purchase is made from out-of-state and the seller did not collect use tax because the seller did not have nexus with Missouri. Nexus is explained more fully later.
Use tax applies to all varieties of remote retail sales, whether the order was made online, on the phone, or by mail. This includes everything from individuals making purchases on Amazon to construction companies buying large shipments of construction supplies from out-of-state suppliers. Our examples below focus on online shopping but we want to emphasize this issue applies to all purchases from out-of-state sellers.
Before the popularity of online shopping exploded, the clear majority of sales were made in-person at a physical location. If you wanted to buy a new pair of shoes, you drove to the store and bought the shoes. At the time of the purchase you paid sales tax on the purchase. If that store was in the city of Columbia and the sales tax rate was the same then as now, you would have paid 7.975% sales tax on the purchase. This total represents a 4.225% State of Missouri sales tax, a 1.75% Boone County sales tax and a 2% Columbia sales tax. The cumulative rate charged depends on the location of the sale. Sales outside of city limits will only have the Missouri and Boone County taxes. Sales within other city limits will have the rates for those cities charged, which may be different than the 2% rate Columbia uses. Ashland’s city rate is currently 2% and Harrisburg’s city rate is 1%.
What the Nov. 7 ballot issue could change
Today, consumer and industrial spending patterns and behaviors have changed. Many people prefer to shop online or make orders remotely. If you choose to make your purchase with an online retailer from another state but who has nexus in Missouri, that retailer should collect a use tax from you at the time of the sale. Presently, Columbia and Boone County do not impose a local use tax. Therefore, the retailer you purchased the shoes from would charge you only 4.225% which is the Missouri use tax rate. If your online retailer does not have nexus with Missouri and does not charge you use tax, the sale is still subject to the tax at the 4.225% rate. However, you are responsible for remitting this on your own by filing a Consumer’s use tax return, but only after your cumulative taxable out-of-state purchases in a year exceed $2,000. The tax should be calculated and remitted using the Missouri Form 53-C. Both individuals and businesses are subject to use tax reporting and payment but many individuals have been unaware of this filing requirement and the Department of Revenue doesn’t have the resources to track compliance for all residents of the State of Missouri.
In all three scenarios, you have made the same purchase. However, by making the purchase physically in Columbia, you pay local and city sales tax. By buying online, you do not pay local and city taxes because Columbia and Boone County have not yet enacted local and city use taxes and this out-of-state purchase is subject to use tax instead of sales tax.
If this ballot measure passes, the use tax rates in Boone County, Columbia, Ashland, and Harrisburg will become the same as the sales tax rate. Therefore the same amount of tax is owed regardless of whether the purchase was made in-person in these localities or online.
As previously mentioned, nexus is a key consideration in this measure. Nexus occurs when a business has enough contact with a state for the state’s tax laws to apply to that business. Whether an online seller has nexus is the deciding factor in whether the seller will collect use tax.
Over the last several years, the definition of sales and use tax nexus has evolved. Historically, the vendor was required to have physical presence in Missouri which meant something such as the presence of a store, employees or inventory. In recent years, Missouri and other states have adopted provisions such as “click-through” and affiliate nexus that no longer require the presence of the seller, but only the in-state presence of the seller’s affiliates. States are becoming more and more aggressive in asserting nexus with sellers, and there has been some push for Congress to pass a law that requires all online sellers to collect use taxes regardless of their nexus with a state. As more sales move online and states continue to experience budget issues, nexus is likely to continue to evolve. If the seller doesn’t collect the tax because they don’t have nexus, it doesn’t mean the buyer isn’t responsible for the tax.
This ballot measure is intended to equalize sales tax revenue in Columbia, Ashland, Harrisburg, and Boone County for in-store and remote sales. Whether passage of the initiative will improve local tax revenue will depend on how many out-of-state sellers are collecting use tax and whether buyers actually remit use tax when the seller didn’t charge and remit it for them. Passing this measure will not increase the number of sellers required to collect use tax, it will simply increase the rate for those who already do. Further state or federal legislation would be necessary to require all out-of-state sellers to collect use tax.
If you have any questions about this issue and how it might affect your personal situation, please contact your WK advisor at (573) 442-6171 or (573) 635-6196.
Posted On: 7-11-2017 | Posted By: WK Staff
On July 5, 2017, Missouri Governor Eric Greitens signed into law Senate Bill 16, which exempts from Missouri sales and use tax “usual and customary” delivery charges that are stated separately from the sale price of retail sales.
In the summer of 2016, The Missouri Department of Revenue sent alerts to all businesses registered for Missouri sales tax. These alerts asserted that delivery charges may be taxable if delivery is intended to be part of the sale. The Missouri Supreme Court ruled in Alberici Constructors, Inc. v. Director of Revenue, 452 S.W.3d 632 (Mo. banc 2015) that intention is a key factor; if delivery was intended to be part of the sale of personal property, the seller would be expected to collect and remit sales taxes on the delivery fee, even if the delivery fee is separately stated on the invoice.
Senate Bill 16 is intended to clarify the matter and revert to the prior standard. The bill will take effect on August 28, 2017.
Please let your WK advisor know if you have any questions on how this bill affects you or your business.
OTHER STORIES FOR YOU
IRS OFFERS TAX RELIEF FOR RESIDENTS, BUSINESS OWNERS OF STORM-AFFECTED COUNTIES IN MISSOURI. The Internal Revenue Service (IRS) has announced that tax relief is available for individual and business filers in the aftermath of recent storms and flooding that affected several counties in Missouri.
HOW PLAN SPONSORS CAN MINIMIZE PENALTIES IN A DOL AUDIT. Certain employee benefit plans (EBPs) are required to undergo financial statement audits in order to file the annual Form 5500. WK performs many financial statement audits of employee benefit plans. However, plan sponsors should also beware of another kind of audit: The Department of Labor (DOL) audit. A DOL audit covers some of the same aspects as a financial statement audit but generally goes into much more detail.
MISSOURI REVISED STATUTE ESTABLISHES CORPORATIONS MUST PAY AT LEAST SEMI-MONTHLY. Missouri corporations that currently pay employees on a monthly basis should take note of a revised state statute that might require them to pay some or all employees on a semi-monthly basis.
Posted On: 6-20-2017 | Posted By: WK Staff
Williams-Keepers LLC (WK) Chairman Jeff Echelmeier, CPA announced today that Jefferson City office Tax Partner John J. Sheehan, CPA, J.D. will retire on July 31, 2017. John has agreed to join long-time WK client Farmer Holding Company in the role of Financial Advisor on Monday, August 7.
Posted On: 4-19-2017 | Posted By: WK Staff
WK Chairman Jeff Echelmeier, CPA shares his thoughts about the firm’s recently completed busy season.
Posted On: 12-21-2016 | Posted By: WK Staff
The Internal Revenue Service announced that the optional standard mileage rate used to calculate the cost of operating a vehicle for business purposes will decrease a half-cent in 2017, to 53.5 cents per mile.
The rate for moving or medical travel expenses will also decrease. The new rate of 17 cents per mile is two cents lower than the 2016 rate.
The allowable rate for miles driven in service of charitable organizations is still 14 cents per mile.
Instead of using these rates, taxpayers have the option to calculate the actual expenses incurred when using personal vehicles.
If a taxpayer has taken a Section 179 depreciation deduction on a vehicle or is a fleet owner, standard mileage should not be used. Contact your WK advisor at (573) 442-6171 or (573) 635-6196 for guidance in those situations.
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OTHER STORIES FOR YOU
NEW FICA WAGE LIMIT FOR 2017. The new wage limit that is subject to the federal Old-Age, Survivors, and Disability Insurance (OASDI) has increased to $127,200 for the 2017 tax year, up from $118, 500 in 2016. Also known as Social Security, this program taxes all workers who have earned income, such as payroll wages or self-employment income.
REMINDER: 2015 LAW CHANGES TAX RETURN DATES FOR C CORPORATIONS, PARTNERSHIPS, AND MORE. A law signed by President Obama last year changed the due dates for certain 2016 tax returns that will be filed in 2017. Entities affected by the new deadlines include partnerships and C corporations, as well as those that file FinCEN Form 114, Report of Foreign Bank and Financial Accounts, and several other Internal Revenue Service information returns.
NEW FORM I-9 EFFECTIVE JANUARY 22, 2017. The White House Office of Management and Budget approved the latest revisions to the Form I-9, which is used to verify that an employee is eligible to work in the United States, in August 2016. The form contains new electronic features and other changes.
Posted On: 12-19-2016 | Posted By: WK Staff
As we near the end of the year, it is a good time to start thinking towards the future and your ultimate goal…retirement! If you are ready to start saving or to increase the amount you are currently contributing, now is a great time to consider your options.
There are many tax favored account types to choose from but determining what you are eligible for can be tricky. In this article, we provide some basic information on some of the most popular retirement savings vehicles but you should always consult your tax advisor to determine what works for you.
Individual Retirement Accounts (IRAs)
IRAs are one of the most broadly applicable options because you, as an individual, can set one up and you are generally eligible to contribute as long as you have “earned income” such as wages or self-employed business income.
- Traditional. The traditional IRA contributions limits for the 2016 year are the lesser of your earned income or $5,500 or $6,500 if you are 50 or older. Contributions for 2016 can made up until April 17, 2017. The limits do change with inflation, but the 2017 limits are the same as 2016.
If you or your spouse are eligible to participate in a retirement plan with your employer, the deductibility of the contributions can be limited based on your income levels. If you are single and covered by a retirement plan at your employer, the deductibility of your contribution phases out with modified adjusted gross income between $61,000 and $71,000. If you are married and file joint, the deductibility phases out for the covered spouse between $98,000 and $118,000 and for the noncovered spouse between $184,000 and $194,000.
However, even if the contribution isn’t deductible, you can still contribute. If all of your contributions were deductible, the distributions in retirement will be fully taxable. Your nondeductible contribution will allow you to take your distributions in retirement tax free to the extent of your nondeductible contributions. We will discuss another option for handling those nondeductible contributions in future articles.
- Roth. The Roth IRA is particularly popular with young savers because your contribution isn’t deductible now, but all future earnings and distributions in retirement are tax free. The contribution amounts and deadlines are the same as a Traditional IRA; however, if you are above the income limits you cannot contribute directly to a Roth IRA. For 2016, single taxpayers lose the ability to contribute to a Roth with modified adjusted gross income between $117,000 and $132,000 or $184,000 and $194,000 for married filing joint taxpayers.
- “Back-door” Roth. While there are income limits to whether or not you can directly contribute to a Roth, there are no income limits for whether you can rollover another IRA into a Roth. If you want to get money into a Roth but you are above the income limits, one strategy is to contribute to a traditional IRA, which is probably nondeductible for you because of the income thresholds, and then to roll that money over into a Roth IRA immediately. However, if you have multiple IRA accounts, both nondeductible and deductible, this strategy could result in taxable income, so consult with your tax advisor before you do anything.
Simplified Employee Pension (SEPs)
A SEP must be set up by an employer, but that employer might be you if you are self-employed. The maximum contribution by a business to an employee’s SEP account is the lesser of $53,000 or 25% of the employee’s compensation for 2016. The nice thing about a SEP is that the employer has until the due date of the employer’s tax return to establish and fund the plan. Contributions are deductible by the employer and taxable when distributed during retirement. This plan has low administrative costs and can be particularly beneficial when you as the business owner are the only employee. If you have employees, this plan can get expensive because you must contribute the same percentage of their salary as you contribute of your own.
SIMPLE IRAs are for employers with fewer than 100 employees. The plan allows employees to make pre-tax contributions of their own money (deferrals) of up to $12,500 per year plus an additional $3,000 if they are over 50. Deferrals are limited by compensation, so if you or the employee make less than $12,500 (or $15,500 if over 50), you or the employee can only defer up to the amount of individual compensation. For C and S Corporations, the compensation of the owner is generally measured by the amount paid in wages. For partnerships and sole proprietorships, compensation of the owners is measured by the amount determined to be their self-employed income.
The employer generally then commits to one of the following contribution amounts:
- 2% of each employee’s wages, or
- matching of employee deferral up to 3% of employee’s wages.
The SIMPLE plan must be set up before October 1st of the year you want to make the plan effective so it is too late for 2016, but this could be an option for 2017.
401(k) and/or Profit Sharing
401(k) and profit sharing plans are plans that can be set up by an employer separately or in combination with each other. They offer quite a bit of flexibility in plan design but that also means there can be a lot of complexity and administration. Basically, if an employer offers a 401(k), employees will be given the option to make deferrals of up to $18,000 per year plus an additional $6,000 if over 50 (also limited to the total compensation of the individual). These deferrals can be pre-tax or, if the plan allows, the employees can elect after-tax Roth 401(k) deferrals. The employer has many options to consider for how much they want to contribute for their employees but the lesser of compensation or $53,000 (plus $6,000) limit applies for maximum contributions.
- For Employees If your employer offers a 401(k), make sure you know what the matching formula is, if any, so that you defer enough of your own money to get the maximum contribution from your employer. Also, find out if your plan offers the Roth 401(k) option. Depending on your situation, it might be wise to make Roth deferrals instead of regular pre-tax deferrals.
- For Employers If you don’t currently have a 401(k) or profit sharing plan, now might be a good time to ask if one would work for you.
If you do have a 401(k) or profit sharing plan, it is a good idea to set up a yearly plan review to make sure you are offering the features and contribution formulas that best meet your goals.
Which plan is best for you?
This is just a sampling of the most commonly used plan types, but that doesn’t mean there aren’t others that might suit your needs. Determining what works best for you and/or your business can be very complicated.
If you would like to consider saving more for retirement please contact your WK advisor at (573) 442-6171 or (573) 635-6196 to help determine the most tax effective way to do so.
OTHER STORIES FOR YOU
IRS ANNOUNCES 2017 PENSION PLAN LIMITATIONS. The Internal Revenue Service recently announced new pension and retirement plan limits for 2017. Many of the limits from 2016 are unchanged, but income phase-outs for IRA contributions, adjusted gross income limits, and the overall defined contribution plan limit show increases from 2016.
HELP EMPLOYEES SAVE FOR RETIREMENT WITH AUTO-ENROLLMENT AND AUTO-ESCALATION. Until a decade ago, employees had to affirmatively choose to participate in a company’s 401(k) plan, and the onus was on employees to understand the plan and determine an effective saving strategy based on their individual goals. However, the Pension Protection Act of 2006 gave employers the ability to jumpstart their employees’ retirement savings through plan features including auto-enrollment and auto-escalation. Plan sponsors that aren’t utilizing these features should consider whether they are right for your plan.
YEAR-END TAX PLANNING FOR INDIVIDUALS. It’s that time of the year again – time to start thinking about the upcoming tax season. You have a few different strategies available to reduce your current year income tax burden. You might be able to: defer your income to be recognized in a later year; accelerate your deductions to be recognized in the current year; or apply for tax credits.
Posted On: 12-16-2016 | Posted By: WK Staff
Until a decade ago, employees had to affirmatively choose to participate in a company’s 401(k) plan, and the onus was on employees to understand the plan and determine an effective saving strategy based on their individual goals. However, the Pension Protection Act of 2006 gave employers the ability to jumpstart their employees’ retirement savings through plan features including auto-enrollment and auto-escalation. Plan sponsors that aren’t utilizing these features should consider whether they are right for your plan.
What is auto-enrollment?
Automatic enrollment allows employers to automatically enroll all eligible employees in the plan and deduct elective deferrals from the employee’s wages. The deferrals are set at a specific amount unless the employee makes an affirmative election not to contribute or to contribute a different amount. Any plan that allows elective salary deferrals can have this feature.
Before any wages are withheld, employers must give employees the option to have none withheld or to have a different amount withheld. Employees can also have the option to withdraw their money within 90 days of the date that the first automatic contribution was made depending on the employer’s plan. In addition, the percentage automatically withheld must apply uniformly to all employees covered by the plan and not exceed 10 percent of salary.
The three types of automatic enrollment
1. Basic automatic enrollment, or Automatic Contribution Arrangement
- Employees are automatically enrolled in the plan unless they elect otherwise.
- The plan document specifies the percentage of wages that will automatically be deducted.
- Employees can elect to contribute a different percentage of pay.
2. Eligible Automatic Contribution Arrangement
- The plan sponsor uniformly applies the plan’s default deferral percentage to all employees after giving them the required notice.
- Employees might be allowed to withdraw automatic contributions, including earnings, within 90 days of the date of the first automatic contribution.
3. Qualified Automatic Contribution Arrangement
- The plan sponsor uniformly applies the plan’s default deferral percentage to all employees after giving them the required notice.
- This arrangement meets and additional “safe harbor” provision that exempts the plan from annual actual deferral percentage and actual contribution percentage nondiscrimination testing requirements
- The default deferral percentage starts at 3 percent and gradually increases to 6 percent with each year that an employee participates. The default percentage cannot exceed 10 percent.
- The required employer contributions are as follows. Employers can either:
– have a matching contribution: 100 percent match for elective deferrals that do not exceed 1 percent of compensation, plus 50 percent match for elective deferrals between 1 and 6 percent of compensation; or
– have a non-elective contribution: 3 percent of compensation for all participants, including those who choose not to make any elective deferrals
Benefits of auto-enrollment
There are many benefits of automatic enrollment into retirement savings plans. One is that this process provides better benefits to improve employee morale, retain talent and improve recruitment. This also allows employees to feel more secure about their retirement.
In addition, employers who implement automatic enrollment provisions will no longer be subject to certain nondiscrimination rules, which can benefit higher-paid employees. This can be a good way help to retain highly paid key executives.
Finally, this option can increase participation in the plan, which in turn increases retirement savings for all the company’s employees, since employees now must make an election to opt out, versus opting in. Most employees will remain in the plan.
What is automatic escalation?
Because employees are less likely to increase their savings rate on their own, the employer can add an automatic escalation feature to the plan. Through auto-escalation, the deferral increases each year at pre-determined intervals based on the year of participation; for example, year one at 3 percent, year two at 4 percent, and year three at 5 percent. At each interval, the contribution amount is typically increased by 1 percent every year until it reaches its preset maximum.
The advantage of the auto-escalation feature is that it increases the amount set aside for retirement purposes without the employee having to do anything. Most plans set their default contribution rate at only 3 percent, which is much lower than needed to effectively save for retirement. Auto-escalation increases that amount annually, increasing the amount being saved. It has also been found that people are less likely to increase their savings on their own.
However, even auto-escalation isn’t the complete answer; if there is only a 1 to 2 percent increase every year, it will take a very long time for people to reach the 12 to 15 percent threshold generally considered necessary for having a secure retirement.
Employee engagement and education
To solve this, employers should be proactive in educating their employees on how much is necessary to save, such as retirement savings calculators, gap analyses, risk tolerance, investment options and other general educational materials. Auto-enrollment helps get employees into the plan and auto-escalation helps them increase their rate of saving, but employers must continue to engage and educate their employees to help them fully understand and participate in planning for their retirement. After all, this is one of the ultimate reasons employers offer the plan.
For more information, you can visit the IRS Retirement Plan FAQ page.
For questions about auto-enrollment and auto-escalation and how it could affect you or your employees retirement, please call your WK advisor at (573) 442-6171 or (573) 635-6196.
OTHER STORIES FOR YOU
MOST PENSION PLAN LIMITATIONS WON’T CHANGE IN 2016. The Internal Revenue Service announced pension plan limitations will not change in 2016, because the modest increase in the cost-of-living index did not meet thresholds for adjustment.
ARE YOUR EMPLOYEE BENEFIT PLAN’S FEES REASONABLE? The Department of Labor’s 408(b)(2) fee disclosure regulations require service providers to disclose how much employee benefit plan sponsors are paying in fees.
“FAILSAFE” DETERMINATION LETTER PROGRAM IS GOING AWAY. Beginning in January 2017, the IRS is abolishing the staggered five-year amendment cycle for individually designed plans and will not accept determination letter applications based on the five-year cycle. If your organization offers an individually designed plan, this means you’ll face significantly higher burdens in order to stay in compliance.
Posted On: 11-21-2016 | Posted By: WK Staff
The IRS recently issued a notice that it has extended the deadline to file Affordable Care Act mandatory reporting of 2016 health insurance coverage on Forms 1095-C and 1095-B from January 31, 2017, to March 2, 2017.
As stated in Notice 2016-70, which was issued on November 18, the IRS wanted to give employers and insurance providers additional time to gather and analyze the information in order to prepare these forms to be given to individuals. This extension will only apply to the 2016 reporting year and is automatic – it doesn’t require the submission of any request or other documentation to the IRS, but no further extensions will be allowed.
Unlike last year, this deadline extension doesn’t apply for filing Forms 1094 and 1095 with the IRS, meaning there will be no extension to file the 2016 Form 1094-B and Form 1094-C. Employers filing these forms by mail will still need to do so by February 28, 2017; employers filing electronically must do so by March 31, unless you request an automatic 30-day extension to those filing deadlines
The IRS also stated that they would be extending the “good faith transition relief” to the 2016 tax year, meaning that the IRS won’t penalize employers for incorrect or incomplete forms if they could show good-faith efforts to comply with the reporting requirements, provided statements were furnished to individuals and filings were made with the IRS on a timely basis.
If you have any questions about the new changes to these deadlines, contact your WK advisor at (573) 442-6171 or (573) 635-6196.
Posted On: 11-21-2016 | Posted By: WK Staff
The determination of whether a worker is properly classified as an employee or an independent contractor is an important issue, as the Internal Revenue Service, Department of Labor, state agencies and the courts continue to step up enforcement.
The IRS test often is termed the “right to control test” or “common law test,” as each factor is designed to evaluate who controls how work is performed. The more control a company exercises over how, when, where, and by whom work is performed, the more likely the workers are employees, not independent contractors. There is a 20-factor test the IRS uses in making its determination.
A worker does not have to meet all 20 criteria to qualify as an employee or independent contractor, and no single factor is decisive in determining a worker’s status. The individual circumstances of each case determine the weight the IRS assigns different factors.
The three most important factors IRS auditors are trained to consider are as follows.
- Instructions to worker: If you require him or her to follow instructions on when, where and how work is to be done, the worker probably should be classified as an employee.
- Job Training: If you provide or arrange for training of any kind, it is a sign you expect work to be performed in a certain way; therefore, the worker is an employee.
- Worker’s ability to make a profit or suffer a loss: An employee will always get paid; however, an independent contractor has a financial stake in his business.
To build a strong case, the company and worker should sign a written agreement and the pay should be by job or project versus time.
If the IRS considers a worker to be an employee because the employer has sufficient control over the worker to create an employment relationship, the IRS can hit you with a costly bill for the employment taxes you should have been withholding and paying.
There is also the reasonable basis test. This is considered a “safe harbor.” If you can show you had a reasonable basis for treating a worker as an independent contractor, the IRS is prohibited from reclassifying the worker as an employee either prospectively or retroactively. If one or more of the following conditions exists, the reasonable basis test is met:
- a court ruling in favor of treating workers in similar circumstances as non-employees;
- an IRS ruling (revenue ruling) stating that similar workers are not employees subject to employment taxes;
- an IRS Technical Advice Memorandum or Private Letter Ruling issued to your company, indicating a worker isn’t an employee;
- a past IRS payroll audit that didn’t find workers in similar positions at your company to be employees; or
- a longstanding, widely recognized practice in your industry of treating similar workers as independent contractors.
If you have any questions or concerns on whether you have classified your workers correctly, please contact a WK advisor for assistance at (573) 442-6171 or (573) 635-6196.