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Sunday, November 19, 2017

Guest Post - Simplification for Employers and Mobile Employees

I have a guest post blog here from Danielle Higley of TSheets.com. She explains H.R. 1393 that aims to simplify payroll registration and filings for employers and mobile employees by making the rules uniform among states as to when an employer needs to register and when the mobile employee is subject to tax.

The Tax Simplification Act That Benefits Employers and Mobile Employees

Danielle Higley,* TSheets.com

Have you heard of H.R. 1393? Most people haven’t. It’s been keeping a lower profile than the bills currently aimed at health care reform or corporate tax cuts. One might argue legislation regarding income taxes — like H.R. 1393 — aren’t often interesting enough to end up in the news, as most people tend to tune out the moment they hear the words “Senate Finance Committee.”

That said, H.R. 1393 should have your attention because if it passes — which it’s likely to do — it may have a major effect on employers and employees.

H.R. 1393, also known as the Mobile Workforce State Income Tax Simplification Act of 2017, basically says any person working over state lines for 30 days or fewer out of the year doesn’t have to pay income taxes in those states.

“The bill would create a uniform national standard, eliminating a compliance maze faced by many employers and employees who need to keep track of state income tax withholding laws and varying de minimis exemption periods,” explains a June 2017 article in Accounting Today.

Rather than filing income taxes in all states worked over the course of the year, employees will file only in their home state and/or in any state where they worked over 30 days. The bill passed the House without amendment and is now waiting to go before the Senate, where it is expected to pass with bipartisan support.

Despite the bill’s popularity, some Americans believe the Mobile Workforce State Income Tax Simplification Act of 2017 could go further. According to a recent independent survey of 811 US employees, 23 percent of people surveyed said states should never tax non-residents. Nine percent approved of a 60-day limit, 13 percent were in favor of a 90-day limit, and 11 percent thought a six-month limit would be more appropriate.

Interstate workers have something to gain

The same survey found 62 percent of workers surveyed have traveled for business. Among them, the majority of these travelers worked in other states for two weeks or fewer. Considering these interstate workers will have to file income taxes in multiple states (or at least every state they’ve worked in, depending on income earned and other factors), many people have something to gain by HR 1393 being signed into law.

Here are a few more stats regarding the Mobile Workforce State Income Tax Simplification Act of 2017:
In the past 12 months, most interstate workers (77 percent) visited more than one state in addition to their home state. Meanwhile:
     27 percent visited two states.
     21 percent visited three states.
     29 percent visited four states or more.

While H.R. 1393 will be helpful to many interstate workers, 38 percent will still be held responsible for paying state income taxes in other states, given they spend more than 30 days out of the year working in a state other than their own.

Currently, only 23 percent of interstate workers are paying income taxes in the other states they’re working in, meaning 77 percent could be committing tax fraud.

How interstate employees can protect themselves from tax fraud

All time worked in another state should be documented. Whether employees are there for two weeks or two months, these records are important for proving to the IRS they’ve been filing their taxes correctly.

According to the Mobile Workforce State Income Tax Simplification Act of 2017, it is the employee’s job to use time tracking tools to record their hours worked in other states. Otherwise, their employer must maintain “a time and attendance system that tracks where the employee performs duties on a daily basis” (check out the full bill for more information).

Even employees who only work in other states a few times a year will want to record their location and time worked in those states, should any questions come up regarding their interstate work history and taxes.

Why employers should pay attention to the outcome of H.R. 1393

1. It’s in an employer’s best interest to help protect employees from committing tax fraud.
Employers can rely on an employee to keep their own records, but be aware, should an employee misrepresent their location or time, their employers could be on the hook for abetting fraud or committing collusion.

Employers can protect themselves by “[maintaining their own] time and attendance system that tracks where the employee performs duties on a daily basis.” Should an employee inaccurately report their time working in another state, “data from the time and attendance system shall be used instead of the employee’s determination.” In plain English, the employer’s record will be held above the employee’s.

2. Efficiency and accuracy help employers keep track of changing interstate rules.
Providing employees with a time and attendance system that does all the tracking for them frees employees to be more productive and accurate with their time reporting.

Forty-nine percent of employees use a non-digital method of time tracking, including paper timesheets, punch clocks, or spreadsheets, but these methods leave room for error. Considering only 1 in 4 employees currently keeps a record of the hours they work, it’s possible that the time being reported may be inaccurate. This, in turn, affects billing and exacerbates inaccurate job costing.

If interstate workers are a key component of your business, or if you yourself work across state lines from time to time, keep an eye on H.R. 1393. It’s true, tax bills don’t always give us reason to celebrate. But if the time you spend working in another state is less than 30 days, the Mobile Workforce State Income Tax Simplification Act of 2017 may be just what you need to simplify your taxes at the start of the year.

What do you think?


*About the Author:  Danielle Higley is a copywriter for TSheets time tracking and scheduling. She has a BA in English Literature and has spent her career writing and editing marketing materials for small businesses. This year, she started an editorial consulting company. 

Saturday, November 18, 2017

California College Access Tax Credit Reminders

California's College Access Tax Credit Program started in 2014. For individuals, it allows a large credit for donations made to this fund. Before claiming any credit though, the donor must first apply for the credit with the State Treasurer. This is because a fixed amount of credits is available so people claim it on a first-come-first-serve basis.  In the first few years, little was claimed relative to the amount allocated.

IMPORTANT - If an individual or corporation wants to get the credit for 2017, the application is due to the State Treasurer by 5 pm on Thursday November 30, 2017 and payment must be made by December 31, 2017.

There was a legislative change this year that extends the credit through 2022.

AB 490 (Chapter 527; 10/6/17) College Access Tax Credit – Extends the credit for five years, through 2022. Also, starting in 2017, “the aggregate amount of credit that may be allocated and certified pursuant to this section, Section 12207, and Section 23687 shall be an amount equal to five hundred million dollars ($500,000,000)” (rather than $500 million per year). FTB analysis - AB 490.


The credit amount for 2017 (and beyond) is 50%. As of 4/3/17, there is $500 million available to be claimed for 2017. In the first three years, despite $500 million allocated for each year, only the following amounts were claimed:
            2014    $3,751,393
            2015    $8,231,253
            2016    $5,369,369
The application form and additional information is provided at the California Treasurer’s website at http://treasurer.ca.gov/cefa/catc/.

On the federal return, individuals claim the donation amount as an itemized deduction. For California, only a 50% credit is claimed (no deduction). The percentage amounts differ for corporations. See above website.

Per the Treasurer’s CEFA information, as described in the Assembly Floor Analysis to AB 490 (9/6/17):

“According to CEFA, nearly $3.8 million in tax credits for 355 taxpayers (from about $6.2 million in contributions) were allocated and certified for tax year 2014. As such, tax year 2015 began with approximately $996 million in available credits, with nearly $8.2 million in tax credits for 328 taxpayers (from about $13.8 million in contributions) allocated and certified over the tax year. Tax year 2016 began with approximately $1.4 billion in available tax credits, with nearly $5.4 million in tax credits for 213 taxpayers (from about $9.9 million in contributions) allocated and certified over the tax year.”

For 2014 that works out to a credit of about $10K per person who donated. I assume this really means a good number of smaller contributions and a few very large ones.

Observations on the credit:

  • It violates the neutrality principle in that it can affect a donor's decision-making to donate to this fund because the tax savings are much larger than for other donations.
  • It is underutilized relative to the dollars available. Why? Too complex due to the application requirement? Too few know about it? 
What do you think?

Saturday, November 11, 2017

Tax Reform - What's Up?

What an exciting month so far for tax reform!  We have an amended bill passed by the House Ways and Means Committee (on 11/9 by vote of 24-16). That's the bill, H.R. 1, Tax Cuts and Jobs Act, introduced just one week earlier.  On 11/9, the Senate Finance Committee released a 253-page summary by the Joint Committee on Taxation (most of the pages describe current law).

A few observations:
  • The House calls for individual rates of 12%, 25%, 35%, 39.6% and a surtax on the top rate because the benefit of the 12% bracket will phase-out for those in the top bracket (over $1 million of income).
  • The Senate rates are 10%, 12%, 22.5%, 25%, 32.5%, 35% and 38.5%.
  • Both change the corporate rate to a flat 20% (rather than today's top rate of 35%). The Senate delays this rate until 2019.
  • Both bills reduce the maximum rate on business income of passthrough entities, other than professional service firms, but in different ways, and both with some complexity!
  • The standard deduction in increased with most itemized deductions other than mortgage interest and charitable contributions remaining. The Senate retains the medical expense deduction.
  • Personal and dependency exemptions are repealed. Both bills have a higher child credit amount and a credit for non-child dependents ($300 in House and $500 in Senate).
  • Increased expensing amounts for limited time periods.
  • Section 199 is repealed.
  • Section 1031 would only apply to real property (other than dealer property).
  • The estate tax exemption is doubled. The House repeals the estate and GST after 2023; the Senate does not.
  • The corporate system is moved to a territorial system with provisions to prevent base erosion.
And there is more.  The House bill is scored to cost $1.5 trillion over ten years as allowed by the recent budget bill.

Next steps is for the House to vote and the Senate Finance Committee to amend its bill and vote and then have it go to the full Senate. Then a conference committee is needed to work out differences to get one bill to go to House and Senate for vote. 

Waiting for ...
  • What all will be temporary due to reality that this will be enacted via budget reconciliation so only 51 votes needed in Senate rather than 60. But bill cannot increase deficit after ten years.
  • Anything new to be added to help reduce cost, if necessary.
  • Whether simplification is possible. While many individuals will move from itemizing to taking the standard deduction, there are still a variety of complex provisions for individuals and busiensses.
We'll see.  I'll have more later

There will be some discussion of tax reform at the CalCPA Federal, State, Local and International Tax Conference on November 15 - 17 at Universal City (and webcast). I'm providing a federal tax update at the start of the program. I'm focusing on cases and rulings and regs, but will note where tax reform might change something.  Other speakers will likely do the same.  AND, for a good discussion of tax reform and the process, Mel Schwarz of Grant Thornton will be talking about tax reform on Wednesday afternoon.  Don't miss that.  Mel knows what's going on in tax reform.

What do you think?

Sunday, October 29, 2017

Guest Post – Range of Tax Issues for Manufacturers

I have a guest blog here from Whirlwind Steel.  It lays out various state, federal and international tax matters for manufacturers. The timing is good as we are likely to soon see a tax reform bill (11/1/17 perhaps). What issues will remain, what might disappear, and what new issues might arise? Let’s start with Steve’s overview of taxation for manufacturers.

Range of Tax Issues for Manufacturers
By Steve Wright of Whirlwind Steel*

Taxes. Just the word can make manufacturers shudder. Trying to navigate the US tax rules makes your brain hurt. However, since taxes are a necessary evil, we put together a list of common tax issues manufacturers face and a few tips to help you through the jungle of tax regulations.

Tax time doesn’t just roll around; it jumps right out at you. Let's see about making it a little less stressful.

The Rapidly Changing State Tax Nexus

Businesses are putting more resources into sales tax compliance as the rules change and become less transparent. One of the biggest issues facing companies is the definition of a state tax nexus. Nexus complicates multi-state taxation for sellers and faces increasing legislation, litigation, and regulatory activity.
  • Nexus is defined as the threshold of activity a company must have with a state before a tax liability is imposed, requiring compliance responsibility.
  • The concept is not completely settled and differs from state to state.
  • States are facing a great deal of fiscal pressure and are casting about for more sources of revenue making nexus a target for constant change.
  • Not only is the requirement to file ambiguous, but other nexus problems can also impact the amount of total state income and franchise tax due; for example, whether you have the right to apportion or disregard sales from your sales tax factor.
With nexus defined and treated differently in each state, the burden of compliance grows exponentially with each state in which a company does business. There is a potential for a company to create a nexus in a state merely by selling to people there.

Confusion over Incentives, Credits, and Deductions

Federal, state, and local governments offer a variety of incentives, deductions, and tax credits, which are designed to encourage certain types of activity that impacts the economy, environment, or another sector. In some cases, the deductions, incentives, and credits are temporary, lasting until a certain tax year and then disappearing. Manufacturers may not have taken advantage due to confusion about eligibility or qualification.

One tax credit that is highly beneficial for manufacturers is the R&D tax credit. 
  • This credit became a permanent part of the tax code in 2015.
  • It is a mechanism for capturing the costs of R&D activity to provide a credit on taxes for R&D activity.
  • Small businesses may be able to use this credit in place of the alternative minimum tax (AMT).
  • Several new projects and investments qualify you for this incentive, reducing risk and costs.
Other opportunities to reduce taxes include the following:

·       Work Opportunity Tax Credit (WOTC) - reduces an employer’s tax liability up to a certain limit for each new hire from a qualified group such as veterans and people in the SNAP program. The credit is available through 2019.

·       S-Corporation Tax Adjustment - if your business is organized as an S-corporation you can take advantage of a stock basis adjustment for charitable contributions of property and exemption from corporate tax on built-in gains assets.

·       Capital Expenditure Expensing - Small businesses and some 39-year property qualify for the 15-year recovery under the federal PATH Act and bonus depreciation.

Business tax advisers and tax attorneys keep up with these changes and have the experience to determine whether or not a manufacturer qualifies.

International Taxes: Section 987, BEPS, and CbCR

Running a global manufacturing company becomes even more complicated, tax-wise, when dealing with a foreign country.
  • Section 987 Regulations - governs the recognition of exchange gain and loss for US remittances for multinational companies with disregarded or flow-through entities and use something other than US dollars for currency. The adoption deadline is 2018 for these regulations.
  • Base Erosion and Profit Shifting (BEPS) - world governments seek to ensure all companies pay tax on revenue in the country in which it was created. Not all countries will implement BEPS, but many have or will. For manufacturers, the chief concern is that BEPS will change the commissionaire structures.
  • Country by Country Reporting (CbCR) - the US federal government issued final regulations that require some US taxpayers that are the ultimate parent [Deloitte newsletter] of a multinational enterprise group to begin CbCR. The filing requirement applies to businesses with $850 million or more in global group revenues.
Multinational manufacturers will need to invest more in compliance with international taxes as changes come fast and furious from governments starved for revenues.

See a February 2017 RSM newsletter on tax and manufacturing for more details of some of these items.

Tips for Tax Time
  • Analyze how your tax accounting method for income and expenses affects your tax planning. Most manufacturers use either income deferral or expense acceleration.
  •  Did you know that fringe benefits are taxable because they are forms of pay for the performance of services? The provider of the service does not have to be an employee. Fringe benefits are also subject to numerous exclusion rules.
  •  The value of your inventory is a significant factor in taxable income. Match the method you use to value inventory to your type of business. Common methods include the Cost Method, Lower of Cost or Market Method, and UNICAP (Uniform Capitalization Rules).
  • You may be liable for both manufacturer excise taxes and the federal highway vehicle use tax. To counter this liability, check your eligibility for an income tax credit or refund for gasoline, diesel fuel, or kerosene used for nontaxable activities.
Paying taxes is a requirement for operating a manufacturing business. Tax regulations change often and require near-constant monitoring to ensure you remain compliant, another regulatory burden you, as a business, must shoulder. However, if you and your tax adviser or attorney pay close attention, you may be able to counter some of your tax liability with available incentives, credits, and deductions.

If you are multinational, you will need to invest in services to help you keep up with international tax law and its impact on your US taxes. The IRS website contains valuable resources to help you navigate through the thicket of regulations while an experienced tax attorney can help you determine the best method of valuing your inventory, tracking excise taxes, and file timely returns.

All manufacturers are in the same tax boat. Consider the tips we offer and take advantage of every possible resource to help you comply yet remain a profitable business.


*Whirlwind Steel designs and manufactures Sturdi-Storage metal self-storage buildings.

Sunday, October 22, 2017

PL 115-63 - Disaster Tax Relief for Hurricanes

Radar for Hurricane Harvey - National Weather Service
Sometimes after major disasters, Congress enacts additional relief. This occurred in late September for the hurricanes. The relief does not apply for the California wildfires. We'll have to wait and see if similar legislation is enacted for it.

P.L. 115-63 (9/29/17) Disaster Tax Relief and Airport and Airway Extension Act of 2017 (H.R. 3823), was enacted. Key tax provisions provide relief for victims of Hurricanes Harvey, Irma and Maria. In addition, certain aviation taxes expiring in 2017 were extended a few months (into 2018). Disaster relief provisions include:

    1. Relief of penalty for early withdrawal of retirement funds under 72(t) waived for qualified hurricane distributions. Generally, any amount required to be included in gross income can be spread over three years.
    2. The loan limit from a qualified employer plan is increased from $50,000 to $100,000. The repayment date for outstanding loans may qualify for delayed repayment.
    3. Employee retention credits for affected employees and employers are created under §38. The credit is 40% of qualified wages applied to the first $6,000 of wages.
    4. Charitable contribution limits are relaxed for qualified contributions in cash made from August 23, 2017 through the end of the year for both individuals and corporations. A donor need not itemize to claim this deduction. A contemporaneous written acknowledgement is required that notes that the donation will be used for relief efforts. Also, an election by the donor is required.
    5. The 10% of AGI casualty loss limit does not apply and a taxpayer need not itemize to claim the loss. The $100 per casualty limit is increased to $500 for the disaster loss.
    6. The EITC and child tax credit calculations can use earned income for the preceding year if greater than earned income for 2017.
Also see my earlier post which I've been updating on disaster relief - here.