TAX+BUSINESS ALERT
Publication by Hawkins Ash CPAs
In this edition
July 3, 2018

Physical Presence Nexus Standard Overturned for Sales and Use Tax Collection

Podcast: The New (But Temporary) Income Tax Brackets

Tax Calendar

Retirement Plan Options for Business Owners
Physical Presence Nexus Standard Overturned for Sales and Use Tax Collection
Under South Dakota law ( if you are not in South Dakota keep reading), retailers have nexus for sales tax purposes if they (1) deliver more than $100,000 of goods or services into the state or (2) engage in 200 or more separate transactions for the delivery of goods or services into the state. In a 5-4 decision on June 21, 2018, the U.S. Supreme Court sided with South Dakota, ruling that the physical presence standard in Quill is "unsound and incorrect." The Court characterized the Quill standard as a "judicially created tax shelter" that benefits internet retailers that limit their physical presence to one or two states, but sell goods and services to consumers in multiple states. 

So What Does This Mean to You? 
As a consumer, it means you will start to see sales tax charged on more and more out of state or internet purchases. As a retailer, it means you may need to start to charge sales tax in states where your product is delivered.

Previously, a retailer needed a physical presence in a state before the state could force you to charge sales tax. This physical presence could be traveling into the state to deliver goods, holding inventory in a state or having sales people in a state. Now, the shipping of items to a state, even by common carrier (UPS/FedEx) can trigger physical presence for sales tax purposes.

The South Dakota law thresholds mentioned above mean that small retailers will continue to be exempt from the sales tax requirements, but based on the Supreme Court ruling, each state will be developing their own thresholds which may be lower than South Dakota’s thresholds.

We recommend businesses develop systems to track the origins of their sales so a determination can be made if sales to a state will be greater than the state’s threshold.
We will continue to monitor each state’s approach to this issue, but if you have any questions, please contact your local Hawkins Ash representative.
Contact: Jeff Dvorachek, CPA
Direct: 920.684.2545
Email: jdvorachek@hawkinsashcpas.com
Podcast: The New (But Temporary) Income Tax Brackets
As part of the Tax Cuts and Jobs Act, the IRS made temporary changes to the individual tax rates beginning in 2018. There was talk of decreasing the number of brackets, but the new law keeps the number of brackets the same at seven. Listen in to this five-minute podcast. Jeff Dvorachek debunks a common perception of tax brackets.
Tax Calendar
July 16

  • If the monthly deposit rule applies, employers must deposit the tax for payments in June for Social Security, Medicare, withheld income tax, and nonpayroll withholding.

July 31

  • If you have employees, a federal unemployment tax (FUTA) deposit is due if the FUTA liability through June exceeds $500.

  • The second quarter Form 941 (“Employer’s Quarterly Federal Tax Return”) is also due today. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until August 10 to file the return.

August 15

  • If the monthly deposit rule applies, employers must deposit the tax for payments in July for Social Security, Medicare, withheld income tax, and nonpayroll withholding.

September 15

  • Third quarter estimated tax payments are due for individuals, trusts, and calendar-year corporations.

  • If a six-month extension was obtained, partnerships should file their 2017 Form 1065 by this date.

  • If a six-month extension was obtained, calendar-year S corporations should file their 2017 Form 1120S by this date.

  • If the monthly deposit rule applies, employers must deposit the tax for payments in August for Social Security, Medicare, withheld income tax, and nonpayroll withholding.
Retirement Plan Options for Business Owners
As a business owner, you may have most of your money tied up in your company, which makes saving for retirement especially challenging. If you haven’t already set up a tax-advantaged retirement plan, think about setting one up this year.

Keep in mind that, if you have employees, they generally must be allowed to participate in the plan, provided they work enough hours and meet other qualification requirements.

Here are a few options to consider:

Profit-Sharing Plans
This is a defined contribution plan that allows discretionary employer contributions and flexibility in plan design. You can make deductible 2018 contributions as late as the due date of your 2018 income tax return, including extensions — provided your plan existed on December 31, 2018.

Simplified Employee Pensions (SEPs)
A SEP is a defined contribution plan that provides benefits like those of a profit-sharing plan. But you can establish a SEP in one year and still make deductible contributions as late as the due date of your income tax return for the previous year, including extensions. Another benefit is that a SEP is easier to administer than a profit-sharing plan.

Defined Benefit Plans
This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. The maximum annual benefit generally is $220,000 for 2018 (up from $215,000 for 2017) — or 100% of average earned income for the highest three consecutive years, if less. Because it’s actuarially driven, the contribution needed to attain the projected future annual benefit may exceed the maximum contributions allowed by other plans, depending on your age and the desired benefit.

You can make deductible 2018 contributions until the due date of your 2018 income tax return, including extensions — provided your plan existed on December 31, 2018. Warning: Employer contributions are generally required and must be paid quarterly if there was a shortfall in funding for the prior year.
Contact: Boyd Lord, CPA
Direct: 507.453.5968
Email: blord@hawkinsashcpas.com
More Resources from CPA-HQ
Do You Have Your Own Wealth Management Plan?
Cybersecurity of Employee Benefit Plans
Nonprofit Tax Tidbits: Form 990 Schedule D
Hawkins Ash CPAs
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