January 2010 Newsletter Volume III Number 1
Why Didn't I Qualify For That Tax Deduction?
By Troy Parton, CPA, Manager
Clients are often frustrated when they are told their income tax refund will be less than what they hoped or, worse yet, they need to cut a check to Uncle Sam. Hearing family, friends or co-workers boast of receiving a tax credit for contributing to a retirement plan or being able to deduct student loan interest can create a mix of emotions if they incurred the same type of expenditures and do not see a corresponding deduction on their tax return. “I’ll call my CPA tomorrow and get an explanation!” they think. When these calls come, I feel like I add salt to the wound if my explanation includes that there is an income range in which tax benefits begin to phase-out.
There are dozens of tax deductions and credits allowable by law and it seems Congress is touting new deductions every year. However, as the following charts show, the tax benefits available to you shrink as your income level rises.
The first chart summarizes the phase-out range, based on Adjusted Gross Income (“AGI”), for married couples. For example, taxpayers with AGI below $110,000 are eligible for a $1,000 child tax credit for each qualifying dependent child under 17 years old. However, the credit begins to phase out $50 for each $1,000 AGI exceeds $110,000 (for married filing jointly taxpayers). Therefore, taxpayers with AGI of greater than $130,000 will not qualify for the credit. The highlighted block shows the AGI range where each tax benefit begins to be phased out and where it ends.
The second chart provides the same information, but for “single“ taxpayers.
These charts are not intended to be all inclusive; there are other deductions and filing statuses. Our hope is you will find it useful and informative to visually see how your AGI impacts the tax benefits available to you.
Contact our office at 765-236-2300 in Kokomo or 260-563-0567 in Wabash if you have questions about the eligibility of a specific tax benefit.
By Julie Tracy, IT Manager
I have had my head in "what if" scenarios for the past couple of weeks. What if the server crashes, what if the internet connection goes down, what if a laptop is stolen, and the big what if the building we work in is destroyed? How would you respond, how would you conduct business and how would you move forward? In a 2009 GAO committee finding, 40-60 percent of businesses fail to recover after a disaster. Would your business be able to recover from a catastrophe? What steps should you be taking to ensure that your business will survive?
Step number one is backing up your company data. A score.org report indicated that 9 percent of business computer users NEVER backup their files. More than 22 percent said that they seldom backup their company data. 37 percent admitted to backing up their files less than once per month. USB flash drives, external hard drives and CDRW media are all readily available and relatively easy to use to backup mission critical information. There are numerous applications that will make backing up your files easier (and even do this for you). You need to make sure that the backup completes successfully, that the files are on the external hard drive or USB drive and that you can restore the files if you need to do so. The Windows operating system even has a backup utility built right into it. You also need to take your data offsite. If you work from home, store your data in a fireproof safety deposit box. If you work in an office, store your files offsite at another location (if you have more than one) or a fireproof safety deposit box.
Step two is to have a plan in the event of a disaster. There are numerous websites and agencies available to help small businesses with a business continuity plan: www.ready.gov/business , www.fema.gov/areyouready and www.score.org/disaster_preparedness.html .
All provide resources and guides to help you develop a plan for your business. They also provide resources and guides to make a plan to prepare your family in the event of a disaster.
Step three is to test the plan. Test your backups to make sure that you can actually recover the data you have been so diligent to backup every day. Also, make sure that your alternative site has adequate supplies to have your business up and running. Have round table discussions with the personnel involved in disaster planning and be sure that all involved understand their roles and responsibilities.
Finally, step four is to revise the plan as circumstances change or as findings from your testing and discussions may suggest. You may have an excellent plan, but if it is not the right plan for your business, it will ultimately fail. Non-profits and churches need to be sure to have a plan as well. Families need to have a plan. Have a plan, test your plan and revise your plan.
Here are some staggering statistics on business resumption after a disaster (this is taken directly from www.score.org):
Don't be a statistic. Make a plan, test your plan and revise your plan. If you want help making a business continuity plan for your business, please call 765-236-2300. We will be happy to help you.
What Exactly Is The Difference Between Sales Tax And Use Tax?
By Amy L. Lucas, CPA, Manager
Every individual and business that has ever sold or purchased products in a store, through a catalog, or over the internet has been affected by the rules governing the collection and remittance of sales and use tax. However, they may not know the difference between the two. While the rate in Indiana for both taxes is 7% of the purchase price, the differences lie in who must collect the tax and who must pay the tax. Let’s explore some of these differences.
Sales tax is collected by the merchant on the sale of merchandise within Indiana. What types of transactions are subject to the collection of sales tax? Although the list is not inclusive, these transactions generally fall into one of the following categories:
- any retail sale;
- the renting or leasing of tangible personal property;
- the renting or furnishing of lodgings for periods of less than 30 days (hotels are an example);
- the renting or furnishing of booths, display spaces, banquet facilities, etc.
To be eligible to conduct any of these activities, merchants must register with the State of Indiana. As registered retail merchants, they charge their customers the tax required to be collected on these transactions. As agents of the State, merchants are held liable for the amount of tax they are required to collect, even if no collection of the tax was made. Retail merchants must charge sales tax unless they receive an exemption certificate from the purchaser or if the merchandise is shipped to a customer outside of Indiana. The tax is reported and remitted to Indiana on Form ST-103 monthly, quarterly, or annually.
Use tax is paid by the purchaser on purchases where sales tax is not collected by the seller. And, again, although the list is not inclusive, these transactions generally fall into one of the following categories:
Whether an individual or business, if you have purchased items for use in Indiana while you were outside the state or through mail order, radio or television advertising, or the internet AND you didn’t pay sales tax at the time of purchase, then you are responsible for remitting use tax.
So, now I know what the taxes are, but how do I pay them? If a business is a registered merchant with Indiana, it must report and remit use tax on Form ST-103 along with the sales tax collected. If a business is not a registered retail merchant, then it must report and remit use tax on its applicable annual business income tax return. Individuals report use tax on their income tax return, Form IT-40, and remit the tax when the return is filed each year.
Remember, as with all rules, there are exceptions and variations to the sales and use tax rules depending on the specific details of the transactions. As the regulatory agency that oversees the collection of sales and use tax, the Indiana Department of Revenue conducts audits on businesses to ensure compliance with the rules governing sales and use tax. Generally, the “hot buttons” during an audit involve the variations of the sales and use tax rules as they relate to a particular business or industry.
As this was just “the tip of the iceberg”, our staff can assist you in determining if you are collecting and remitting sales and use tax accordingly. Additional information may also be found on the Indiana Department of Revenue’s website: www.in.gov/dor.