October 2019 Newsletter
Though it is still Summer in terms of the weather, Autumn is technically in full swing, meaning it’s time to start preparing for the busy months ahead. You can get ready by learning about the Form 1040 updates you’ll see this 2019 tax season, as well as the new Marketplace Facilitator sales tax laws for anyone that sells through Amazon or eBay. You can also brush up on your rights if a bill collector ever harasses you.
Call if you would like to discuss how this information relates to you. If you know someone who can benefit from this newsletter, feel free to send it to them.
Another Year, Another New 1040
In 2018, the government attempted to “simplify” the tax-filing process by drastically shortening Form 1040. The result was six new schedules that created a lot of confusion. Now the IRS is attempting to ease some of that pain by revising the form and removing some schedules. Will it help? Here is what you need to know:
- More information on the main form. To make it easier for the IRS to match pertinent information across related tax returns, new fields have been added on the main Form 1040. For example, there’s now a spot for your spouse’s name if you choose the married filing separate status. In addition, there’s a separate line for IRA distributions to more clearly differentiate retirement income.
- 3 schedules are gone. What was your favorite memory of Schedules 4, 5 and 6? Was it the unreported Social Security tax on Schedule 4? Or the credit for federal fuels on Schedule 5? While those schedules will no longer exist, those lines (and many others) have found a new home on one of the first three schedules. Less paperwork, but still the same amount of information.
- You can keep your pennies! For the first time, the IRS is eliminating the decimal spaces for all fields. While reporting round numbers has been common practice, it’s now required.
- Additional changes on the way. The current versions of Form 1040 and Schedules 1, 2 and 3 are in draft form and awaiting comments on the changes. Because of the importance of the 1040, the IRS is expecting to make at least a few updates in the coming weeks (or months) before they consider it final. Stay tuned for more developments.
How to prepare for the changes
The best way to prepare is to be aware that 1040 changes are coming. The information required to file your taxes will remain the same, but some additional hunting will be necessary to find the shifting lines and fields on the modified form.
Remember, changes bring uncertainty and potential for delays, so getting your tax documents organized as early as possible will be key for a timely tax-filing process.
Bill collector calling? Know your rights
Maybe you’re behind on paying your bills because of circumstances outside of your control. Or perhaps there’s been an error in billing. Either way, these scenarios may lead to a run-in with a debt collector. Fortunately, there are strict rules in place that forbid any kind of collector harassment in the U.S. If you know your rights, you can deal with debt collection with minimal hassle. Here’s what to remember:
- You have a right to details — without harassment. When a debt collector calls, they must be transparent about who they are. They need to tell you: “This is an attempt to collect a debt, and any information obtained will be used for that purpose.”
In addition, debt collectors cannot use abusive language, or threaten you with fines or jail time. The most a debt collector can truthfully threaten you with is that failure to pay will harm your credit rating, or that they may sue you in a civil court to extract payment.
- You don’t have to put up with 24/7 calls. Debt collectors may not contact you outside of “normal” hours, which are between 8 a.m. and 9 p.m. local time. They may try to call you at work, but they must stop if you tell them that you cannot receive calls there.
Keep in mind that debt collectors may not talk to anyone else about your debt (other than your attorney, if you have one). They may try contacting other people, such as relatives, neighbors or employers, but it must be solely for the purpose of trying to find out your phone number, address or where you work.
- You can tell them to stop. Whether you dispute the debt or not, at any time you can send a “cease letter” to the collection agency telling them to stop making contact. You don’t need to provide a specific reason. They will have to stop contact after this point, though they may still decide to pursue legal options in civil court.
- You can dispute collection. If you believe the debt is in error in whole or in part, you can send a dispute letter to the collection agency within 30 days of first contact. Ask the collector for their mailing address and let them know you are filing a dispute. They will have to cease all collection activities until they send you legal documentation verifying the debt.
If a debt collection agency is not following these rules, report them. Start with your state’s attorney general office, and consider filing a complaint with the U.S. Federal Trade Commission and the Consumer Financial Protection Bureau, as well.
Amazon and eBay Sales Tax ALERT!
If you or your business sells product on Amazon using the Fulfillment by Amazon (FBA) service, you are well into the multi-state sales tax mess … even if you are not aware of it. You may be asking yourself:
- Do I now need to register my business with every state and collect tax on their behalf?
- Do I really have physical nexus? What about economic nexus? What is nexus?
The old sales tax standard required you to collect and remit sales tax only in states that you have a physical presence (also known as physical nexus). The recent South Dakota vs. Wayfair, Inc. decision by the Supreme Court then legitimized the concept of economic nexus. This means your business could be required to collect and remit sales tax based on where you ship a product and not whether you ever set foot in a particular state (economic nexus).
The bigger mess
States were quick to jump on the bandwagon and actively identify Amazon, Ebay and Walmart sellers to demand sales tax for website sales. Some states, like California, got even more aggressive and decided that FBA sellers actually have physical presence because Amazon may put your product in a warehouse in their state. They got seller lists from Amazon and sent out threatening letters to small sellers demanding back sales tax, even though businesses have no way to retroactively collect the tax because the customers are Amazon customers.
Marketplace facilitator to the rescue?
To help address this mess and alleviate the need for small businesses to collect and remit sales tax forms to 50 states, many states acknowledged the problem and have passed what is called Marketplace Facilitator laws.
In short, it’s on the facilitator, NOT you. States with these laws require Amazon, Ebay and similar companies that facilitate sales for resellers to collect and remit sales tax on reseller Amazon activity. There are more than 30 states that have adapted these laws.
You DO NOT need to register your business to collect sales tax in states that have Market Facilitator legislation unless you are otherwise required to do so.
What you need to know
- Know the states. Know which states have Marketplace Facilitator laws. If you don’t, you could unwittingly register your business with a state when you do not have to do so.
- Some states deploy deceptive tactics. For example, California passed a Marketplace Facilitator law effective October 2019. Despite this law, the California Department of Tax and Fee Administration (CDTFA) is actively soliciting (threatening?) small businesses who sell on Amazon to register and remit sales taxes for a time period prior to this date without disclosing the new law. To make matters worse, their sales tax registration form could make you personally liable for business-related sales tax and disclose your confidential supplier list. It may also be filled with other legal entrapments.
- Know the minimums. Even states without Marketplace Facilitator laws typically have minimum thresholds before they require you to collect and remit sales tax. Every state is different, but the typical limit is 200 transactions or $20,000 in sales.
- Check out streamline states. Collecting and remitting sales tax is a daunting task for any small business. Using a third party sales tax administrator is very expensive. There is some help, albeit still complicated, for registering with 23 states that are part of a streamline sales tax agreement.Sales tax collection in multiple states is not for the faint of heart. Streamline Sales Tax and Bill Track 50 are a few of the popular sites that can help.
Reminder: Time to Start the Financial Aid Process
If you have a child in college or entering college during the next school year, you need to read this. You can now fill out your required Free Application for Financial Student Aid (FAFSA) for the next school year.
FAFSA application timeframe
The Free Application for Federal Student Aid (FAFSA) process opened on Oct. 1.
The time to file is now
The earlier you file your application, the earlier you will receive aid packages from most participating schools. The application is used to receive grants, federal loans and work study awards. Here are some hints to ensure the application process works in your favor:
- Create your FSA ID. If you have not already done so, both the student and a parent will need to set up a Federal Student Aid (FSA) ID (username and password) within the FAFSA system. You cannot submit the FAFSA form without first doing this.
- File the FAFSA early! As soon as possible, fill out and submit your FAFSA. Filing early maximizes your chances of receiving aid. It also minimizes your chances of missing an unknown application deadline.
- Use your tax records. Because the year is not yet over, you can use last year’s (2018) tax information when filling out the application. There are IRS tax return data retrieval tools within the online application to automate this process.
- Talk to your advisors. If you have a child ready to attend college, stay in touch with both your financial advisor and your school advisor. A financial advisor is used to help manage your assets to present a good financial picture starts before your student’s junior year in high school. The school advisor is a great resource to help you find potential sources of money.
- Collect the right info.To fill out a FAFSA you will need the following:
- Social Security number
- Alien registration number (if not a U.S. citizen)
- Federal tax information
- Record of any nontaxable income (excluding retirement account balances)
- Balances of the following:
- Cash, savings and checking accounts
- Investment asset balances
- Other assets
- FSA ID
Filling out the form can be a daunting task for the uninitiated, but with proper preparation you can get your form done in quick order.
5 Ways Payroll Services Boost a Business
Is a payroll provider right for you and your business? While it is an added expense, there are good reasons to add a partner to help with this service. Here are five things to consider:
- Allows full attention on growing the business. If a portion of employees is focused on managing and processing payroll, business growth opportunity may be stifled. This is especially true if a key employee or owner is the one processing payroll. By outsourcing payroll responsibilities, the full workforce can concentrate on growing the business.
- Improves accuracy and compliance. Most entrepreneurs didn’t go into business to tabulate hourly time cards, calculate tax withholdings, or stay current with the constantly changing government filing requirements. Thankfully there are those who specializes in monitoring labor regulations, compliance updates and the number-crunching that payroll requires. This will invariably improve the payroll accuracy a business needs.
- Lowers audit risk and increases peace of mind. Federal taxes, state taxes, local taxes, Social Security, Medicare, unemployment taxes and overtime requirements are long (and growing). Payroll services reduce audit risk on the front end and provide audit assistance on the back end.
- Enhances internal controls. Separation of duties is an important internal control for all businesses. This is tough to do in a small company. Businesses with one or two-person payroll departments are susceptible to fraud or embezzlement. Adding an outside payroll service can provide the checks and balances a company needs to stay protected.
- Save money. One of the key methods of reducing business costs is adding efficiency. Outsourcing payroll increases efficiencies because payroll professionals need fewer hours to get the job done. These time improvements, coupled with potential savings in penalties and interest, can have a positive effect on net income.
When laying out and understanding all aspects of using a payroll service, it may be time to review your situation.
As always, should you have any questions or concerns regarding your tax situation please feel free to call us 615-750-5537.
This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This publication includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this newsletter. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does PATTERSON, HARDEE & BALLENTINE CPAs have any control over, or responsibility for, the content of any such Websites. All rights reserved.