Labenz & Associates LLC has updated our office policies to correspond with local COVID-19 related guidelines. We will continue to take the following steps to keep both our valued clients and our staff healthy.
Thank you for your continued understanding and patience.
A new refundable tax credit is available in 2020 for all Nebraska taxpayers that paid real estate taxes in 2020.
The Nebraska Property Tax Incentive Act provides that, for taxable years beginning on or after January 1, 2020, taxpayers that pay school district taxes during a taxable year are allowed a refundable credit against the state income or franchise tax.
The credit is a percentage set by the Nebraska Department of Revenue. For calendar year 2020, the credit percentage will be set so that the total amount of credits for the taxable year is $125 million. The 2020 percentage is 6 percent of school district taxes paid in 2020. Subsequent calendar years call for an increase in the credit as provided by the statute.
Eligible taxpayers include individuals, corporations, partnerships, limited liability companies (LLCs), trusts, estates or any entity paying school district taxes.
Nebraska Form PTC – Nebraska Property Tax Incentive Act Credit Computation
Form PTC must be filed by all taxpayers claiming the credit and by any partnership, S corporation, fiduciary or LLC distributing school district property taxes paid to its owners. Form PTC is used to identify parcels and compute the amount of credit that can be claimed on a taxpayer’s Nebraska tax return.
The credit information is obtained by accessing the Nebraska School District Property Tax Look-Up Tool provided by the Nebraska Department of Revenue. (https://ndr-1107parcel.ne.gov/parcelldLookup/faces/search.xhtml). The look-up tool calculates the amount of real estate tax that is eligible for the credit.
For most individual taxpayers, Labenz & Associates LLC will plan on using the look-up tool to determine individual and/or an entity’s property taxes eligible for the credit based on the taxpayer’s home or office address. If you, or an entity you are involved with, have multiple parcels of real estate, pays real estate taxes as a tenant or have real estate titled under other names, or in multiple Nebraska counties, then Labenz & Associates LLC will need your help ensuring the proper amount of credit is claimed.
Each partnership, S corporation, fiduciary or LLC must provide its owners or beneficiaries with the information necessary to compute their share of the credit on their respective tax returns.
The process to claim the credit is a bit cumbersome. For each parcel of real estate that a taxpayer paid real estate tax in 2020, we will need the following information:
If its simpler, please make a copy of either your 2019 or 2020 Nebraska real estate tax statement(s) to send along with your tax information.
A credit may be claimed by a taxpayer only if that taxpayer paid the taxes on the parcel. If a tenant pays the tax on behalf of the owner, then the credit can only be claimed by the tenant.
The property tax is considered paid on the date it is received by the county treasurer where the parcel is located. If a payment is mailed on December 31, it is considered a deduction for income tax purposes, but is not eligible for the credit because it would not be received by the county treasurer until the following calendar year.
When a parcel is sold, then the amount eligible for the credit will be in proportion to the ownership days in the property tax year.
When a parcel is owned by more than one taxpayer, then the tax paid will be based on ownership percentage during the property tax year.
* * * * * * *
Although the Nebraska Legislature passed a bill with good intentions and to provide property tax relief to Nebraska taxpayers, the implementation of the property tax relief is burdensome and complicated. If you have questions regarding the Nebraska Property Tax Incentive Act Credit, please contact our office. We are happy to assist you.
TAKE ADVANTAGE OF SOME RECENT TAX LAW CHANGES CONTAINED IN LATEST STIMULUS PACKAGE
Business Meals Provision
In general, ordinary and necessary food and beverage expenses (business meals) incurred by your business are deductible. However, the deduction is limited to 50% of the otherwise allowable expense.
The new law now allows 100% tax deduction for business meals if the food or beverage is provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022, with an emphasis that takeout and delivery meals provided by a restaurant are also fully deductible.
As a reminder of the existing requirements, for deducting business meals:
Entertainment, unlike the food and beverages, is nondeductible. Therefore, if food or beverages are provided at an entertainment activity, the cost must be stated on a separate bill, invoice or receipt and paid separately.
Employee Retention Credit Expansion and Extension
Under the CARES Act, passed in March 2020, the Employee Retention Credit (ERC) provided a refundable payroll tax credit for 50% of qualified wages of up to $10,000 per employee.
To qualify for the credit, the taxpayer must meet one of two requirements:
The definition of “qualified wages” differs based on the size of the taxpayer:
The Taxpayer Certainty and Disaster Tax Relief (TCDTR) Act of 2020, Section 206, now allows taxpayers to claim the ERC, even if they received a PPP loan. A retroactive ERC credit can be claimed for 2020 wages, the stipulation being the same wages cannot be used to qualify for both PPP loan forgiveness and the ERC.
The TCDTR also extended the ERC provisions from January 1, 2021 through June 30, 2021, and expanded the credit with the following provisions:
In summary, employers should review their 2020 activity to see if any wages qualify (after PPP loan forgiveness) for the retroactive credit of up to $5,000 per employee. Employers should ALSO review their 2021 activity to determine if any wages qualify (after PPP loan forgiveness) for the current year credit of up to $14,000 per employee for the first two quarters of the year.
The credit will be claimed on the taxpayer’s quarterly Form 941 payroll tax return. For additional guidance on who qualifies and how to claim the credit for ERC, please contact your payroll provider for assistance.
The IRS issued approximately 160 million Economic Impact Payments (Payment) totaling over $270 billion under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The IRS mailed Notice 1444, Your Economic Impact Payment, to your last known address within 15 days after the payment was made. Please provide your tax preparer with Notice 1444. [The IRS is unable to issue a copy of the notice. You may have obtained a Payment even if a notice was not received.]
You may be eligible to claim the Recovery Rebate Credit on your 2020 tax return if you did not receive a payment in 2020 or did not receive the maximum payment. This credit will increase the amount of your tax refund or lower the amount of the tax you owe.
There is no provision in the law that would require individuals who qualified for a Payment based on their 2018 or 2019 tax returns, to pay back all or part of their payment. No repayment is required even if you would not qualify for a full or partial payment based on your 2020 income.
You can check the status of your Payment using the IRS website’s “Get My Payment” at https://www.irs.gov/coronavirus/get-my-payment.
This website will allow you to:
The IRS urges everyone to be on the lookout for scam artists trying to use the Economic Impact Payment as a cover for schemes to steal personal information and money. The IRS will NOT contact you by email, text messages, or social media to request personal or financial information. Watch out for emails with attachments or links claiming to have special information about Economic Impact Payments or refunds.
If you have questions about your Economic Impact Payment, please contact our office. We are happy to assist you.
December 31, 2020 is fast approaching. Below are year-end planning updates for charitable contributions and qualified medical expenses.
CHARITABLE CONTRIBUTIONS
QUALIFIED MEDICAL EXPENSES
If you have any questions regarding charitable contributions or qualified medical expenses, please contact our office. We are happy to assist you.
“Wherefore Art Thou?”
Is a:
Unfortunately, No. 3 maybe the right answer.
The COVID-19 pandemic has changed the way many employers operate and has forced some employees out of the office to work from home. In some cases, employees have worked remotely from another state. Employees are working at their parents’ home, with their in-laws, with friends, in the mountains, or by the water. The internet has opened the possibilities for where employees can work. In addition, what was thought to be a short-term pandemic has turned long term with many employees now working remotely in excess of 6 months during 2020 and still counting.
These trends have highlighted state nexus rules, nexus being defined as a company’s connection to a state. Generally, when an employee works outside of the state(s) where the employer operates, physical nexus is created, subjecting the employer to the tax rules of the other state(s) jurisdiction.
With many employees hunkered down and working remotely in different states during 2020, one could anticipate numerous employers unwittingly creating nexus in new states for 2020. As a result, the employers become subject to new state and local tax requirements. The requirements vary, but could include state and local income tax withholding for employees, payment of workers’ compensation and unemployment insurance, as well as state and local income taxes.
The prospect of navigating the obligations brought about by a remote workforce scattered throughout the country may be daunting for employers. In response to the COVID-19 pandemic, many states are addressing nexus rules and withholding requirements.
The approach varies from state to state and not all jurisdictions have addressed the issues directly. Nevertheless, several states have provided relief from their typical nexus framework, asserting that changes in the temporary work locations of a business’ employees due to the COVID-19 pandemic will not be used to establish nexus in that state. In other cases, the length of time remote workers spend in a state is consequential.
Notably, several states have not provided comparable provisions addressing nexus during the pandemic. The patchwork of rules that currently apply requires due diligence by employers. Employers with employees that worked remotely in other states during 2020 should review their nonresident income tax withholding requirements and be cognizant of the potential assertion of nexus in states where employees work in 2020.
If you have questions about remote employees and its impact on your business, please contact our office. We are happy to assist you.
On August 17, 2020, the Nebraska Advantage Act was replaced by the ImagiNE Nebraska Act, which will take effect on January 1, 2021. Applications for the Nebraska Advantage Act filed on or before December 31, 2020, can be amended to choose the ImagiNE Nebraska Act if the new program better fits your needs. No new Nebraska Advantage Act applications will be accepted after December 31, 2020.
The ImagiNE Nebraska Act was put in place to offer tax incentives to businesses to encourage investment and employment growth in the state. Specific provisions target high-wage jobs and investment in distressed and rural areas.
There are several differences between the qualifications and applications required for the ImagiNE Nebraska Act and the Nebraska Advantage act, including the following:
There are also several changes to the factors used to compute the credit, including:
Refunds available will be capped at $25 million for both 2021 and 2022, with the cap increasing to $100 million in 2023 and 2024, and $150 million for 2025. Beginning in 2026, incentives will be capped at three percent of state net tax receipts.
If you have questions about the ImagiNE Nebraska Act and its effects on your business, please contact our office. We would be happy to assist you.
Never has the lifetime exemption been so high, and current interest rates are at unprecedented lows. Change may be on the horizon which makes planning today so important.
An effective wealth transfer option for you to consider is an Intentionally Defective Grantor Trust (IDGT).
An IDGT is an estate planning tool used to transfer wealth to family members during the life of the Grantor.
Funding Options – Gift and Installment Sale
The beneficiaries of IDGTs are typically children or grandchildren who will receive assets that have been able to grow without reductions for income taxes.
The IDGT can also be created as a Dynasty Trust allowing assets to pass to future generations free of estate tax.
An additional effective wealth transfer option is a Grantor Retained Annuity Trust (GRAT).
A GRAT is created when a donor (the Grantor) contributes assets with appreciation potential to a fixed term, irrevocable trust. A GRAT allows the Grantor to transfer future appreciation to the next generation with little or no gift tax liability.
Please contact our office if you would like to discuss using an IDGT, GRAT or both as a tool(s) for your estate planning.
The CARES ACT, passed by Congress in early 2020, contains various economic tools to assist businesses as they navigate through the financial impacts of COVID-19. Some of the opportunities in the CARES ACT are easily overlooked by taxpayers. We would like to bring an important item to your attention.
One of the economic tools contained in the CARES ACT is the ability to carryback a net operating loss incurred by a taxpayer during their 2018, 2019 or 2020 tax years. The loss can be carried back to offset income in up to five prior tax years.
Taxpayers that paid Federal income taxes during their 2014 through 2018 taxable years have an opportunity to recoup all or a portion of the Federal income taxes previously paid by using the five-year carryback provision. The CARES ACT change is intended to help businesses that incur losses in 2019 or 2020 to generate cashflow from the losses and hopefully assist their businesses through the economic downturn caused by COVID-19. Prior to this change, most taxpayers could not carryback but instead had to carryforward any net operating loss they incurred.
Timing is everything for a taxpayer to take advantage of the five-year carryback opportunity as the losses must be incurred in their 2019 or 2020 tax years. The law reverts to the original provisions in 2021. Planning strategies can be reviewed to maximize the losses and generate as much tax refund cashflow as possible.
For example, taxpayers can use bonus depreciation and certain accounting method change adjustments to increase the available loss carryback. The CARES ACT also made changes to the bonus depreciation rules and the IRS has liberalized the accounting method change rules to assist businesses in taking advantage of the five-year carryback rule.
We are available to assist you in evaluating the potential benefits of the five-year carryback provision.
Identity theft is an ongoing battle and occurred in the EIDL program according to the Small Business Administration (SBA).
We recommend that you periodically check the EIDL and PPP lists of grantees and borrowers published by the SBA to verify that your company and your name are not incorrectly included on the lists. The PPP list includes only the names of borrowers for loans of $150,000 or more.
If you find your name or company incorrectly listed as a borrower or grantee or are contacted by your bank or the SBA about forgiveness of a loan you did not receive:
Who is eligible to defer employment tax deposits?
What employment taxes and deposits may be deferred?
When is the deferred employment tax required to be deposited (applicable dates)?
What is the effect of a Payroll Protection Plan (PPP) loan on the deferral?
What are the effects of FFCRA paid leave credits and CARES Act employee retention credits on the deferral?
Who is eligible for a PPP loan for sole proprietorships and independent contractors?
What is the PPP loan amount for sole proprietorships and independent contractors?
How is the PPP loan amount calculated for a sole proprietorship without employees?
Income tax deductions for the sole proprietor’s 50 percent of self-employment tax, self-employed health insurance and self-employed retirement plans are not factored into self-employment earnings.
How is the PPP loan amount calculated for a sole proprietorship with employees?
Income tax deductions for the sole proprietor’s 50 percent of self-employment tax, self-employed health insurance and self-employed retirement plans are not factored into self-employment earnings.
What portion of the PPP loan is eligible for forgiveness?
When does the application period begin?
Labenz & Associates LLC Disclosure: The information provided is general in nature based on provisions as of April 10, 2020. Additional provisions may apply. Please discuss the provisions with your tax advisor and SBA lender.
The CARES Act has changed the life of Qualified Improvement Property (QIP) from 39 years to 15 years, thus making it eligible for bonus depreciation. This is a technical correction for the QIP issue and is a retroactive change, back to January 1, 2018.
IRA distributions up to $100,000 made in 2020 will not be subject to the 10% early withdrawal penalty if it’s a “coronavirus-related distribution”. It is still subject to Federal and state income tax, however.
Starting in 2020, a taxpayer is able to deduct up to $300 for charitable contributions, even if they do not itemize deductions on their Federal income tax return.
For 2020 only, donations made to charities that are subject to the 60% AGI limit are now allowed up to 100% of AGI for 2020.
The Tax Cuts and Jobs Act (TCJA) changes to NOL loss carrybacks and carryforwards have been temporarily replaced.
The TCJA rules regarding limitations on excess business losses have also been repealed for 2018 - 2020.
The 30% limit on business interest expense is raised to a limit of 50% for 2019 and 2020.
Enhanced Unemployment Benefits
Payroll Protection Program
Economic Injury Disaster Loan (EIDL) and Grants
Labenz & Associates LLC Disclosure: The information provided is general in nature based on provisions as of March 31, 2020. Additional provisions may apply. Please discuss the provisions with your tax advisor and SBA lender.
The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19).
This loan is different from the loan included in the FFCRA. Clients who are affected by closed businesses are recommended to get their name on the list.
Website link: https://disasterloan.sba.gov/
On March 18, 2020, President Trump signed the Families First Coronavirus Response Act (FFCRA) into law. Below is a brief summary of the tax-related provisions, which are effective April 2, 2020, and expire December 31, 2020.
Paid Sick Leave
Payroll Tax Credits
The paid sick time payroll tax credit can be claimed on a quarterly basis, equal to 100 percent of the amount of sick leave wages paid. The credit is limited to up to $511 per day ($5,110 total) if an employee is taking time off to care for themselves; or up to $200 per day ($2,000 total) if the sick leave is to care for an individual who is quarantined or showing symptoms of COVID-19 or a minor child whose school/daycare is closed. The credit is refundable if it exceeds the amount the employer owes in payroll tax.
For employers who pay family leave wages under the FFCRA, a separate payroll tax provision allows a 100 percent credit against the employer’s share of the payroll tax for each employee, limited to $200 per day, or a total of $10,000 per employee. The credit is refundable if it exceeds the amount the employer owes in payroll tax.
Self-employed workers, including independent contractors also can claim a credit against their regular income taxes related to sick or family leave. The credit covers 100 percent of self-employed individuals’ daily self-employment income or 67 percent if an individual is taking care of a minor child whose school/daycare is closed. The per-day amount is limited to the lesser of $511 per day if for themselves, $200 per day for a minor child or their average daily self-employment income
Labenz & Associates LLC is doing our best to balance the spread of the COVID-19 virus and the tax filing season. We have taken the following steps to keep both our valued clients and our staff healthy.
Thank you for your understanding and patience.
A few weeks ago, the IRS released a draft of the new 1040 Schedule 1 form for the upcoming 2019 tax season. Taxpayers will now be required to check ‘yes’ or ‘no’ to the very first question on this new tax form:
“At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”
What does this mean?
This means that ALL taxpayers must now inform their tax preparer whether they have any cryptocurrency (virtual currency) related activities during the year.
Labenz & Associates LLC will add a question to our tax organizers requesting whether or not our clients participated in any cryptocurrency transactions during 2019. If yes, information will need to be provided to report these cryptocurrency transactions.
The Nebraska legislature recently passed LB 512 requiring each S corporation, limited liability company and partnership with income from Nebraska sources to file a Nebraska income tax return for all tax years beginning on or after January 1, 2019.
Prior to the legislation, these pass-through entities were not required to file Nebraska returns if all shareholders, members and partners were Nebraska residents and all the entity’s income was from Nebraska sources.
The Nebraska Department of Revenue encourages all taxpayers to file tax returns electronically and requires tax preparers who file more than 25 Nebraska corporate or partnership income tax returns to file electronically as well.
Electronically filing a Nebraska corporate or partnership return requires a Nebraska identification number that is assigned by the Department of Revenue.
All S corporations, limited liability companies and partnerships for which we will prepare 2019 initial Nebraska income tax returns will receive a letter and form from our office to complete and return as soon as possible, regarding the Nebraska identification number required to electronically file the 2019 tax return.
BACKGROUND
The 2018 tax preparation season is upon us and Labenz & Associates will need more information than ever before from our clients to file certain tax returns.
One of the new tax benefits for 2018 tax returns is the 20% Qualified Business Income (QBI) tax deduction. This is a great tax benefit for those clients who qualify. But as discussed below, the new deduction will require us to obtain additional information from our clients to assess qualification and to determine the amount of the deduction.
In certain instances, these will be difficult assessments. The better the information clients can provide to us, the better we will be able to determine the eligibility to claim the new tax benefits.
For noncorporate taxpayers – individuals, estates and trusts who own a business activity – the key question for their 2018 tax returns is: Will you qualify for the 20% QBI deduction? The analysis will apply to individuals, estates and trusts with:
A simple example: Mary and Bob own a hardware store through an S corporation. The business earned a $100,000 profit in 2018. Will Mary and Bob qualify for a $20,000 deduction on their 2018 tax return?
The purpose of this Alert is to provide an overview of the 20% QBI deduction, including some recently issued IRS guidance, so our clients can help us assess their ability to claim the deduction. If a client does qualify, we may need more information to quantify the deduction when we prepare the 2018 tax return.
The 20% QBI deduction is determined differently for taxpayers above or below certain taxable income threshold amounts. Taxpayers below the threshold amount must satisfy one requirement whereas taxpayers above the threshold must satisfy three requirements.
TAXABLE INCOME UNDER $157,500 SINGLE AND $315,000 JOINT
Single individuals, estates and trusts with 2018 taxable income at or under $157,500 and married filing jointly with taxable income at or under $315,000 (the threshold amount) can qualify for the 20% QBI deduction by satisfying one requirement – their business activity must be classified as a “trade or business activity”.
A trade or business activity is not a defined term, but prior Court cases and the recently released IRS guidance shed some light on activities that will be considered a trade or business. Examples:
To address rental situations, the IRS offered a safe harbor. The rental activity (or multiple activities, if the taxpayer chooses to treat them as a combined enterprise) can be classified as a trade or business activity if all the requirements below are met.
Triple net leases and vacation homes do not qualify as a trade or business activity under the safe harbor even if the 250 hours requirement can be documented. Self-rentals do qualify even if the 250 hours requirement is not met if the self-rental is combined with a trade or business activity that is commonly owned by the taxpayer that is not a C corporation.
TAXABLE INCOME OVER $157,500 SINGLE AND $315,000 JOINT
Taxpayers with taxable income over the threshold amounts who have business activities that satisfy the trade or business requirement outlined above either by itself or on a combined enterprise basis must satisfy two additional requirements to claim the 20% QBI deduction:
Requirement #1 – THE TRADE OR BUSINESS CANNOT BE A SPECIFIED SERVICE TRADE OR BUSINESS.
For whatever reason, when Congress created the new 20% QBI deduction, certain trades or businesses were specifically excluded from claiming the deduction if the taxpayer’s income is above the threshold amount. These trades or businesses are defined as Specified Service Trade or Businesses (SSTB) and include the following:
IRS guidance tried to address questions about who is and who is not an SSTB. For example, with the right facts, surgery centers could fall outside the health field, as well as research, testing and the sale of pharmaceuticals and medical devices.
If your taxable income is above the threshold amount and your business activity includes an SSTB, a decision will need to be made if your business activity qualifies when we prepare your 2018 tax return.
The IRS provided a de minimis exception to address situations where a business activity with multiple trades or businesses, of which one or more is an SSTB, could still qualify for the 20% QBI deduction.
For business entities with gross receipts less than $25 million for a taxable year:
Requirement #2 – THE TRADE OR BUSINESS MUST HAVE WAGES OR INVESTMENT IN DEPRECIABLE ASSETS.
For taxpayers above the threshold amount, the 20% QBI deduction for non-SSTB business activities are limited to the greater of the following:
How this limitation impacts taxpayers above the threshold will vary greatly by taxpayer and by type of business activity. For example:
We have found most banks have sufficient wages, whereas real estate investors will generally rely on the 25% of wages and 2.5% of depreciable tangible property to cover their 20% QBI deduction.
Taxpayers who own farmland that is either crop share or custom farmed and have no wages and limited tangible property will have a significantly reduced 20% QBI deduction due to these limitations.
ALL IS NOT LOST
Remember – even if your business activity does not qualify for the 20% QBI deduction, all is not lost.
Early planning in 2019 may enable the business activity to qualify in 2019. For example:
Please discuss your qualification for the 20% QBI Deduction with your Labenz & Associates tax advisor. We are here to help.
The Internal Revenue Service (IRS) has issued regulations regarding partnership audit rules effective for partnership tax years beginning on or after January 1, 2018 and may require an amendment to the partnership’s operating agreement.
Partnerships must designate a partnership representative (PR) with a substantial U.S. presence.
Partnership audits will be conducted at the partnership level.
Eligible small partnerships with 100 or fewer partners can elect out of the partnership audit rules for any tax year. The election must be made every year on the timely filed Form 1065.
If not eligible for the small partnership election out, the partnership can make a valid “push-out” election within 45 days after receipt of the final IRS audit adjustments.
All partnerships for which we prepare tax returns will receive a form from our office to complete and return as soon as possible, regarding specific information about partners and the partnership representative to be designated.
As the end of 2018 rapidly approaches, we are sharing this alert as a reminder that 2018 is not business as usual from a Federal and state income tax year-end planning perspective.
The 2018 tax year is the first year the changes made by the 2017 Tax Cuts and Jobs Act go into effect for most businesses and individuals.
MAJOR BUSINESS CHANGES
MAJOR INDIVIDUAL CHANGES
Meals and Entertainment
Activity |
2018 Expenses |
2017 Expenses |
|
||
Office holiday parties, |
100% deductible |
100% deductible |
|
||
Entertaining clients |
Meals 50% deductible |
50% deductible |
Meals with prospects |
50% deductible |
|
Events such as theatre |
50% deductible |
|
Charitable event tickets – |
Tickets to qualified charitable |
|
|
||
Business meetings of employees, |
50% deductible |
50% deductible |
|
||
Expenses for attendance at a |
Meals – 50% deductible |
50% deductible |
|
||
Employee travel meals |
50% deductible |
50% deductible |
|
||
Meals provided for the |
50% deductible |
100% deductible if a |
Examples
Example Activity |
2018 Expenses |
2017 Expenses |
|
|
|
Meal with a client in town (not |
50% deductible |
50% deductible |
|
|
|
Meal with a client while traveling |
50% deductible |
50% deductible |
|
|
|
All employee meeting with food |
100% deductible |
100% deductible |
|
|
|
Open house for customers and |
Employee portion – |
Employee portion – |
|
|
|
Company sponsors a table at a |
Value of meals – 50% if |
Meals – 50% deductible |
|
|
|
Golf sponsorship and outings |
Meals – 50% deductible if (Remainder is charitable contribution) |
Meals and golf – |
On June 21, 2018, the U.S. Supreme Court (the Court) issued a decision in South Dakota v. Wayfair, overturning the physical presence standard requirement for states to impose sales and use tax filing obligations on companies doing business in a state. As a result, companies are in the process of understanding how the Wayfair decision impacts their sales and use tax filing requirements.
We are alerting our clients that the Wayfair decision could also have other state tax filing implications, including income and franchise taxes as examples.
The Court observed in their Wayfair ruling that targeted advertising and electronic sales may allow a business to have “substantial virtual connections” to a state without traditional physical presence. The Court noted that other functions of e-commerce, such as websites leaving cookies on customer hard drives and applications that can be downloaded on customer phones, may be considered to create something akin to a physical presence in a taxing state.
Given the Court's conclusion that “physical presence is not necessary to create substantial nexus”, the Wayfair decision could impact other state taxes, such as state income or franchise taxes, for companies conducting business activities in a state without necessarily having a physical presence.
For example, even prior to Wayfair, many state and Federal courts have taken the position that the physical presence standard does not apply for purposes of state income taxes. Many states have been emboldened to enact “factor presence” laws tied to sales, property or payroll in their state. Wayfair decision type states have attempted to subject companies to their state tax regime if they are doing business in their state even without physical presence.
The Court has declined to hear challenges to economic nexus laws for state income tax filing purposes. With the test announced in Wayfair, more states may enact aggressive legislation. Effects are likely to be especially pronounced in the handful of states that have taken the position that physical presence is not necessary for the state to assert income tax nexus against a company doing business in their state. Physical presence is not required to establish nexus with Nebraska. [Neb. Rev. Stat. §77-2734.04(5)].
We believe the Wayfair decision may empower states to not only enact legislation, but also pursue audit and collection activities against companies doing business in their state that currently are not subject to their state taxing regime.
Therefore, we believe it is necessary for companies that have customers or clients in multiple states to actively review their state filing positions in light of the recent Wayfair decision.
Please contact us if you need assistance with such a review or have questions about the Wayfair alert.
Congress is currently working on a massive tax reform proposal that could change many aspects of income tax law. It is uncertain what the final version of the bill will look like or if anything will get passed at all, but there are still income tax planning opportunities available under the current law. We highlight below a few strategies you may want to consider before the end of the year to reduce your 2017 taxes.
We also want to alert you to some new rules that will affect our partnership and LLC clients.
In light of these changes, we recommend you review your partnership or LLC agreement with your attorney as soon as possible to ensure it addresses the significant changes required.
If you would like our assistance with any of your year-end planning questions, please let us know.