state tax

WAKE UP WITH REM: Fizzy beverages, the Nancy Drews of accounting, and a tax “surprise”

The Northeast is experiencing an unrelenting heat wave. Why not stay cool with some tax and accounting news from around the world?

Arkansas lawmaker “surprised” at his arrest for not filing or paying state taxes since 2003. What’s that you say? It’s illegal not to file or pay taxes for 15 years? Who’d have thunk? He’ll probably be surprised to learn he owes $260,000 in back taxes, too. [WREG.com]

Bottoms up! Following intensive lobbying from beverage companies like Coca-Cola and PepsiCo, California governor Jerry Brown signed a bill banning local taxation of sugary sodas. Many cities in the state are “looking toward taxes to discourage people from drinking beverages linked to obesity.” [ABC News]

 
 

Move over, Nancy Drew—the forensic accountants are in town. Forensic accountants are the unsung heroes of Singapore. Here’s why. [Business Times]

SPOILER ALERT. Accounting Today has published its summer reading list for 2018. The headline claims it’s “summer reading for accountants,” but take our word for it – there’s a lot of good stuff for just about any adult on this list. (Where’s the spoiler, you ask? Fine: It was all a dream. Happy?) [Accounting Today]

 

50 people try to make scrambled eggs. This video has the entire REM Cycle staff scratching their heads and wondering how some of these people even made it to adulthood.

 

The Wake-Up Call is The REM Cycle’s biweekly compilation of newsworthy articles pertaining to taxation, accounting, and life in general. Got a hot tip? Email us at REMCycle@rem-co.com.

The IRS is not amused with states' attempts to circumvent federal tax changes

 
 

The recently enacted Tax Cuts and Jobs Act (TCJA) makes some potentially detrimental changes to state and local tax (SaLT) deductions, namely a limitation on the tax deduction of $10k for married filers and $5k for single filers for state taxes.  Prior to the TCJA, there was no such limitation (even though some taxpayers were hit with the Alternative Minimum Tax, but that is a different discussion).  This presents a problem for taxpayers in “high-tax” states: any jurisdiction that imposes a high income tax, a high property tax, or both, such as New York, New Jersey, California, and Connecticut.  The TCJA did not cap the deduction on charitable contributions; in fact, they increased the limit from 50% to 60% of adjusted gross income for certain types of gifts, and even then excess contributions are allowed to be carried over into subsequent years.

If only there was some way to decrease the amount of state taxes paid to say, less than $10K, while at the same time increasing charitable gifts!  State legislators in these high-tax states were quick to cook up a work-around to this change and came up with a doozy.  States will establish state-run charitable trust funds.  Taxpayers would be allowed a state tax credit of some percent (New York provides 85%; New Jersey, 90%) of their contribution to these funds, and in theory, also get a deduction on their federal tax return for a charitable contribution.  Thus, states would shift the character of payment from one category to the other and there will be much rejoicing (and tax deductions).

 
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The IRS wasted little time responding and announced that they will release proposed regulations to provide guidance to taxpayers on how the IRS is the authority on the characterization of charitable contribution and it doesn’t matter what the states say.  The central factors in determining if a charitable contribution is deductible is that it 1) is paid to a qualified organization (which the states’ trust funds can meet) and 2) the deduction must be reduced by any benefit the taxpayer receives.  If you have been paying attention, you will have noticed that, in this arrangement, the taxpayer would receive a benefit for their contribution in the form of a tax credit, and therefore they would have to reduce their charitable contribution deduction by the state tax credit they received.  This results in a net zero benefit to taxpayers.

More than anything, this is posturing by politicians in state and federal positions.  Unfortunately for those of us in high-tax states, we will have to deal with paying taxes to our state and not getting the benefit we were used to getting in the past.  There are other important issues that states will have to address in the wake of the TCJA which we will discuss in future posts.  If you would like to complain about this or other topics, reach out to your trusted advisor, or give me a call.

Wake up with REM: "Potpourri" for $200, Alex

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When you’re an accountant, tax is never trivial. But because today’s “Wake Up” stories have no common theme, we’ve chosen “Potpourri” as our category, and included some trivia questions just for you.

Trendsetting in accounting [Accounting Web]

Will $12 billion tax bite drive rich from California? [California Matters]

Did the new tax law cut your taxes? You might be surprised [Minnesota Public Radio]

Can taxes shape an industry? Evidence from the implementation of the “Amazon Tax” [Wiley Online Library]

 

Feeling smart today? Test your tax trivia with The REM Cycle's Tax Jeopardy Quiz.

Got a tax trivium we missed? Let us know in the comment section below.

 

We'll let Alex Trebek have the last word...

The Wake-Up Call is The REM Cycle’s biweekly compilation of newsworthy articles pertaining to taxation, accounting, and life in general. Got a hot tip? Email us at REMCycle@rem-co.com.

You Need My WHAT Now? New York Among States Requiring Driver’s License for Electronic Filing

New York State is so demanding already in terms of personal information required to file your individual tax return.  They want your name, address, social security number, date of birth, your income, employer’s name and address… the list goes on and on.  Starting in 2016, we get to add another piece of sensitive data to that list: your driver’s license information.

In an effort to strengthen identity fraud protection, New York has added this required information as a new layer to identity verification within their electronic filing system.  Taxpayers must provide this information to their preparers to comply with the new rule.  New York accepts a valid driver’s license or state-issued ID to satisfy this requirement.  A third option exists: if you don’t have either (or are deceased, in which case you’re probably not reading tax blogs), then your preparer can “opt out” of providing the information.

New York is emphasizing that this is required for all taxpayers and is advising preparers that they must collect and enter this information to their tax software.  The “opt out” should only be used when the taxpayer doesn’t have such a document (or has passed on). New York State’s official FAQ publication posted on the Tax Department’s website regarding compliance states:

Q. If my client is known to have a valid driver license or state-issued ID, but chooses not to disclose it, can I check the No Applicable ID box without repercussion? Am I required to disclose this (similar to when a taxpayer refuses to e-file)?
A. As with any return data, you should submit the information as it’s provided by your client.

Interpret that answer at your own risk, but at an FAE conference in January of 2017, Nonnie Manion, the Executive Deputy Commissioner of the New York State Department of Taxation and Finance, advised preparers to “just check the “No Applicable ID” box for now” in cases where the taxpayer has an ID issued by any state other than New York.

I applaud New York’s effort to combat identity fraud, which is a real issue facing taxpayers everywhere, but putting even more sensitive identity data in a single place seems like it is begging identity thieves to increase their efforts to target tax preparers.  For taxpayers attempting to safeguard their information, sharing information is a major activity to avoid.  In a way, New York’s effort is in direct opposition of basic identity protection.

I just hope that in 2017, New York doesn’t require your first pet’s name and the street where you grew up as additional layers of electronic filing identity verification.  For now, New York taxpayers will have to provide to their preparers one of the three options New York State is willing to accept.

Voluntary Disclosure Programs: A Saving Grace

Image courtesy of iStock.

Image courtesy of iStock.

Being a good tax citizen is important for businesses. However, businesses do not always adhere to that notion in practice. When a taxpayer does business in a jurisdiction, the decision to comply with applicable tax law is many times governed by the risk of exposure. This is especially true when businesses operate in multiple jurisdictions; compliance is assessed on a case-by-case basis. The cost burden of compliance resulting from registering to do business and filing tax returns in every required state can outweigh the benefits of the activities performed in those jurisdictions. Perhaps at that point, the decision not to register or not to file is made by the taxpayer and business goes on. However, over time the risk of exposure for not filing due to tax liability and mounting interest and penalties may grow to an unacceptable level. In addition, not registering to do business may have certain legal repercussions that can interfere with operations.

The questions then become:

  • Should I start filing now?
  • Should I have started filing already?
  • If I don’t file, will the tax man come after me?
  • What if the taxing authority requires me to have registered previously?
  • What if information requested from prior years reveals additional liability?

Luckily, many states have a viable answer: Voluntary Disclosure Programs. These programs allow a taxpayer to come to the taxing authority, with hat in hand, and diminish some of the exposure. Specifics vary by state, but generally the taxpayer is forgiven of penalties in exchange for payment of tax and interest due over the applicable look-back period. Look-back periods can also vary, but most fall into a 3- to 4-year range. Other conditions include, but are not limited to:

  • Registering to do business with the appropriate department
  • Continued future compliance
  • Not having been contacted in the past by that jurisdiction
  • Not currently being under audit

A taxpayer can anonymously apply to most programs through a representative (usually their accountant or lawyer). Once accepted, the taxing authority will set forth a timeline and list of what the applicant must do in order to complete the agreement. Generally, a signed document disclosing the identity of the taxpayer and outlining required compliance must be sent. The tax returns, tax due plus interest that apply to the look-back period must also be submitted.

Voluntary disclosure programs offer a path to compliance that can limit a significant amount of exposure. If you believe that you are noncompliant and your exposure risk is too high for comfort, you should consider entering into a voluntary disclosure program via a trusted representative.