April Newsletter

Happy tax filing month. To help celebrate, this month’s newsletter includes a fun tax quiz exploring tax laws created by states trying to capture other state’s tax revenue. There is a reminder to help your favorite charitable organizations retain their non-profit status and reasons to file a tax return even when you are not required to do so. An interesting article discussing the new Gig economy term used by our political candidates rounds out this month’s newsletter.

Should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

2015 Tax Quiz

The states must be crazy

Historically, nexus laws protect consumers and businesses from paying taxes to states where they do not visit or live. These laws are intended to protect interstate commerce. With the lack of strong federal tax guidance, many states are now passing fairly creative laws to reach into the pockets of their fellow states’ tax revenues. Can you match the creative law with the state?

Question Consultants pay more tax than employees.This state wants income tax on your consulting work as a non-resident but does not require you to pay tax if you are a non-resident “employee” doing the exact same work despite the fact you never set foot in their state.
Answer California

Question A non-resident gets married and pays tax to a state he has never visited. A widower who lives and works in Florida marries a widow from another state. The widow’s state demands income tax on the new husband’s earnings made while living and working in Florida.
Answer Utah and others

Pencil and quiz
Question New gross receipts tax concept. This state’s recent law introduces a Commerce Tax based on a business’ gross receipts and the type of business they conduct. This departure from traditional sales/use tax and income tax is placed on any business that has $4 million or more in state gross receipts. The tax is owed even if the business is located in another state. To make matters worse, the law requires the out-of-state businesses to pay for any audit related expenses should the state wish to examine their books. Expense reimbursement could be required even if no tax is due as a result of the audit.
Answer Nevada

Question Tax your inheritance. The federal government and most states will tax the estate of a person who passes away. But a few states also tax the other end of the death spectrum; those who receive an inheritance. If you expect money from a rich relative, you will not want to live in any of these states when your new found wealth arrives.
Answer Iowa, Nebraska, Pennsylvania, Kentucky, New Jersey, Maryland

Given the copy-cat nature of state revenue departments, it is possible that many more states have followed the lead of those mentioned here. Your best defense is to know the rules and support establishing legislative clarity at the federal level from our elected officials.

Non-profit Annual Filing Due

Annual reporting is required for all organizations that wish to keep their non-profit status intact. The due date for this filing is May 16, 2016 for calendar year organizations. How can you help ensure your favorite charities stay compliant?

Check mark Check on-line. The IRS has a master list of charitable organizations recognized as non-profits in good standing. Here is a link:Exempt Organizations Select Check
Check mark Remind the organization. Many small non-profits like youth sporting groups and local school booster clubs often forget about this reporting because officers are constantly rotating in and out of the organization.
Food donations
Check mark It is not too difficult. If the charitable organization has less than $50,000 in gross receipts, they can comply by sending in a Form 990-N e-Postcard. Larger organizations must fill out Form 990 or Form 990-EZ.
Check mark Failure to file could cause your favorite charity to lose its non-profit status. This can have a cascading effect on all those donating who wish to deduct their donation on their tax returns.

Understanding the Gig Economy

Some believe that by the year 2020 40% of all jobs will be part of the Gig Economy. So what is this phenomena and how can you take advantage of it?

It’s all in the name

The “Gig Economy” is a morphed description of old titles like the “peer-to-peer” business model and crowd sourcing. What it refers to is the ability to control when and where you wish to work. Quite like the musicians of old who worked their music gigs, this gig concept is spreading far and wide.

Where the Gig is exploding

Icon cab Cab services. Cab services like Uber and Lyft allow workers to activate their ability to take riders through a phone app. Once activated, you can arrange to pick up fares close to your location.
Icon home Home rental. Want to make a few dollars renting space in your home or apartment? Many services exist to make your home available when you want. Your peer-to-peer service provider matches what you offer with those who need accommodation.
Icon truck Delivery services. The options in this area are vast and expanding. You can offer to pick up and deliver meals, groceries, dry cleaning, pets and more. Even bicycle delivery services are available to you when you wish to earn a few extra bucks.
Smartphone with Uber and Airbnb logos
Icon paper Financial services. Even your savings can be put out on a “gig” service. Places like Lending Source and Funding Circle provide a platform to match lenders with those who wish to borrow your money for a time.
Icon stopwatch Referees and game officials. Want to earn money officiating sporting events? Many services are popping up that allow officials to enter their available schedule and locations they are willing to travel to officiate games. They are then assigned games and paid through the same on-line app.

Does it work for you?

This new way to match labor supply with demand is becoming more popular. Here are some things to consider before getting too involved in the gig economy.

Icon question Contractor versus employee. Almost all these service companies treat you as an independent contractor. You are responsible for your Social Security and Medicare taxes. You must get your own benefits and send in estimated tax payments.
Icon question Part-time versus full-time. If you are a recently retired worker, picking up some part-time gigs will keep you socially connected and earn some extra income. Making this a full-time occupation can be more of a challenge.
Icon question Legal landscape. As the gig economy booms, so does the potential for legislation that changes the landscape. Many local cab companies are trying to squash services like Uber. Local hotels are trying to limit the ability for you to rent lodging. Worker’s liability coverage also needs to be considered if something goes wrong.
Icon question Urban versus rural. Gig opportunities tend to be located in large metropolitan areas. Depending on this employment for your income in remote areas might be tough.

What’s next

The problem the gig economy solves is more readily matching supply with demand. This puts the old business models at risk. Anticipate more attention in this area as legislative action tries to balance the power of this new job creation device with a dramatic redefinition of employment no longer centered within vast company payrolls.

You Still May Wish to File a Tax Return

Too many taxpayers fail to file a tax return under the false notion that one is not required to pay income tax. This assumption can cause problems. Here are some examples of when to file a tax return even when not required to do so.

Check mark Wish to qualify for Premium Tax Credit. This tax credit helps reduce the cost of health insurance for those who purchase their insurance through the new health insurance marketplace. Without a filed tax return you cannot have the Premium Health Credit applied towards your monthly premiums. In fact, non-filing could limit your ability to receive this credit in future tax years as the IRS continues to place controls on the payment of this credit.
Check mark Receive refundable tax credits. There are certain tax credits that will provide refunds even if you do not owe income tax. The most common of these is the Earned Income Tax Credit.
Check mark You wish to limit potential audits. The IRS typically has three years to audit a filed tax return. If no tax return is filed, this audit time limit never starts.
Check mark You are applying for financial aid or loans. Banks and colleges will often use tax return information to qualify you for loans and financial aid. Even if not required to file, it is nice to provide this information if requested.
1040 form and IRS logo
Check mark You are filing a final tax return for a loved one. The IRS will eventually receive death information through the Social Security Administration. By filing a final tax return, you can put the breaks on unwanted communication from the IRS as they wait for this confirmation.
Check mark You want withholdings returned to you. Always file a tax return if an employer or other supplier withheld tax funds. It is the only way you will receive them back from the federal government.
Check mark You wish to protect against someone else filing a tax return. With the vast increase in identity theft from the IRS, filing a tax return can close the door on would-be thieves. Your filed tax return can block attempts by someone else who files a second tax return with fake information.

As always, should you have any questions or concerns regarding your situation please feel free to call.

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