CPA.com Blog

CPA.com

South Dakota vs Wayfair: What you need to know

If you follow the news, you are aware of the upcoming oral arguments for the South Dakota v. Wayfair case taking place April 17th.  This hearing is monumental because the Supreme Court will finally address whether states can broadly require online retailers to collect sales tax even if they lack a physical presence in the state.

What constitutes “physical presence” has been largely debated and challenged as the way business is conducted has evolved since the 1992 case of Quill Corp v. North Dakota that set the precedent.

With the oral arguments quickly approaching, here are a few things that you need to know:

  • This case directly challenges the decision in Quill. The Supreme Court will need to decide if the issue of physical vs non-physical establishments extends to internet sellers.
  • South Dakota passed economic nexus legislation in 2016 which requires online merchants with no physical presence in the state to collect and remit sales taxes if the retailers’ annual sales in the state exceed $100,000, or if the retailers conducts 200 or more separate transactions in the state of South Dakota over a given year. Other states have imposed similar legislation.
  • If the Supreme Court agrees, states could receive the green light to require the collection of sales tax from internet sellers.
  • Although the oral arguments are taking place April 17th, a ruling is not expected to be made until at least June 2018.

 
If you are looking for a resource to learn more about this case, and the implications of the upcoming oral arguments, make sure to listen to the podcast that was recorded with special guest, Peggi Rockefeller, Chief Tax Officer, Vertex Inc. We will make sure to keep you posted of all the latest happenings as this potential game changing tax decision unfolds over the next few months.

Please remember that CPA.com provides information for educational purposes, not specific tax or legal advice. Information included is current as of April 1, 2018 and may be impacted by Supreme Court decision in Wayfair v. South Dakota. Always consult a qualified tax or legal advisor before taking any action based on this information.

Michael Trabold

Director, Compliance Risk, Paychex

Before and After Tax Reform: What the Changes Mean for You and Your Clients

For individuals and businesses alike, tax reform is a lot to unpack. Even if your clients can wrap their heads around the new rules, they may not know what these changes mean for their wallets. To truly understand the impact of tax reform, it’s helpful to keep in mind the pre-tax reform policies and compare the two sets of regulations.

The major business tax implications your clients need to know include:

  • A change in corporate tax rate from a progressive tiered rate, which generally ranged from 15-35, to a flat rate of 21 percent with no corporate Alternative Minimum Tax.
  • Newly instated deductions of up to 20 percent for qualified business income for pass-through entities (partnerships, LLCs, sole); but be sure to note that because the provision falls under the individual tax code, it will sunset in 2026 without additional legislative action.
  • A tax credit, ranging from 12.5 percent to 25 percent of wages paid in 2018 and 2019, for certain employers that provide paid family and medical leave to their workforce.
  • Modifications to the rules for exclusion of employee achievement awards to prohibit items such as cash and gift cards from tax-free status.
  • A reduction in the ACA’s individual mandate tax penalty to $0 by 2019. Self-insured employers and insurers are still required to report individuals covered by their plan or face penalties.
  • Businesses can no longer make deductions for settlements and costs of settlements related to sexual harassment or sexual abuse if settlements are subject to nondisclosure agreements.
  • Businesses no longer get a deduction for contributions to commuting expenses with the exception of cycling cost reimbursement. Employees still receive the tax-free benefit for the previous commuting cost with the exception of cycling – money toward cycling to work is no longer tax-free for the employee.

Individual tax provisions under the tax reform bill sunset in 2026 without additional legislative action. These changes to individual taxes, include:

  • An increase in the standard deduction to $12,000 for single filers, $24,000 for married joint filers, and $18,000 for heads of households. In 2017, deductions were $6,350 for single filers, $12,700 for married joint filers, and $9,350 for heads of households.
  • The discontinuation of personal exemptions. In 2017, the IRS allowed a $4,050 exemption per family member, including the filer.
  • An increase in the maximum child tax credit to $2,000, plus an additional $500 family credit for nonchild dependents. Phaseout thresholds have also been raised to $400,000 for joint filers and $200,000 for singles in 2018. Before tax reform, maximum child tax credit was $1,000, and the phaseout thresholds were $110,000 and $75,000 for joint and single filers, respectively.
  • A decrease in the mortgage interest deduction threshold to $750,000. Previously, the mortgage interest deduction threshold was $1,000,000.
  • A doubling of the estate and gift tax exemption to $10 million.
  • A change in moving expense deductions. While civilians used to be able to deduct moving expenses, now only members of the armed services can make this deduction.
  • The discontinuation of a special rule which allowed recharacterization of individual retirement account (IRA) contributions between Roth and traditional IRAs.
  • A reduction in the threshold for deducting qualified medical expenses to pre-Affordable Care Act levels (7.5 percent) for 2017 and 2018 only.

Changes made to the IRS withholding tables also play a role in how tax reform impacts your clients:

  • Before tax reform, the withholding rate on supplemental wages for $1 million or less was 25 percent. It is now 22 percent.
  • Before tax reform, the withholding rate on supplemental wages over $1 million was 39.6 percent. It is now 37 percent.
  • Before tax reform, the back-up withholding rate was 28 percent. It is now 24 percent.
  • Before tax reform, the amount to add to non-resident alien wages was $2,300 annually. It is now $7,850 annually.
  • Though they were eliminated, personal allowances were retained in the new withholding tables to work with the current Form W-4. Employers will need to factor these allowances in when applying the withholding.

The impact of tax reform is still evolving, stay up-to-date with the latest tax reform developments impacting both employers and employees at www.paychex.com/articles/compliance/tax-reform. The AICPA also has a host of tax reform resources at www.aicpa.org/taxreform.

Mike Trabold is director of compliance risk for Paychex, Inc. Paychex is a leading provider of human capital management solutions for small- to medium-sized businesses.

Erik Asgeirsson

President & CEO, CPA.com

Executive Roundtable Debrief: What are the Key Trends for 2018?

One of my favorite events each year is the AICPA/CPA.com Executive Roundtable, a gathering of accounting technology executives, practitioners and thought leaders.  I think it’s the best pulse check on the state of innovation in the profession.

This year’s event in January was no different. We had presentations from 41 startups and leading-edge companies, as well as panel sessions on key issues confronting CPA firms. Here are some of my takeaways:

  • Artificial intelligence is ascendant. Numerous executives expressed their belief that artificial intelligence will become like cloud technology is now – an expected component of business, not something seen as an extra or add-on service. We’ll use AI to improve customer service, ferret out financial irregularities and even write code for our apps, as one of our speakers, Tomer Dicturel, founder of Crane.Ai, said. Except artificial intelligence’s adoption rate will be a lot faster than that of the cloud.
  • Some barriers still need to come down. Hundreds of competing client software systems make it difficult for AI solutions to bridge the gaps, practitioners say. And for both AI and blockchain, more regulatory guidance is needed before firms really take the plunge.
  • A rising tide lifts all boats. Our roundtable participants include a fair number of executives from companies that compete in the marketplace. What’s always impressed me is the commitment from attendees to take a big-picture approach and discuss how we can push the profession forward together. This isn’t a zero-sum game.
  • Don’t ignore security risk. If you don’t have a plan to manage cybersecurity risk for your firm and your clients, you’re playing with fire. Hackers and criminals are creative, committed and have shown a willingness to collaborate with each other to breach systems and steal personal data, according to Ted Ross of SpyCloud, one of our session speakers. CPAs need to be aware of what they’re facing.
  • Predictions for the coming year. Our next roundtable is Jan. 16-17, 2019. By then, I expect we’ll have heard a lot more about the evolution of the audit and technology inroads in tax and financial planning. We’ll also have a firmer sense of the implications of AI and blockchain on the profession.

 
Watch for more about our Roundtable insights as the year progresses. It’s an exciting time to be a CPA, and CPA.com is committed to providing you with the tools and resources to make the most of it.

Michael Trabold

Director, Compliance Risk, Paychex

Five Key Regulatory Issues Small Businesses are Facing in 2018

From passed to proposed and everywhere in between, there are many regulatory changes and legislative reforms set to move forward in the year ahead. It can be challenging for anybody, financial advisors and compliance experts included, to keep up with where things stand, but small business owners are often understandably overwhelmed by the ever-changing regulations with which they must comply to avoid costly penalties.

Here are five hot regulatory issues your small business clients are facing in 2018:

#1 Tax Reform. The speed with which the GOP passed the first major tax overhaul in decades left businesses with little time to assess what this legislation means for them in 2018. In January, the IRS released Notice 1036, instructing employers how to appropriately withhold wages from their employees’ paychecks. The new tables reflect the increase in the standard deduction, repeal of personal exemptions, and changes in tax rates and brackets. Employers have until February 15, 2018 to implement new withholding guidance. From a business perspective, small business owners can also begin 2018 tax planning, knowing that the corporate tax rate will be streamlined to a flat 21 percent. Some small businesses will likely be interested in changing how they are structured to take advantage of tax reform’s measures to further reduce the tax burden for pass-through entities. However, pass-through entities utilizing the individual tax code will need to pay close attention to associated personal tax changes, including: rate cuts, some removed deductions (including personal exemptions and the deduction for state and local income tax), and increased standard deduction. Congress added a deduction of business income for pass-through companies of up to 20 percent, but there are complex requirements and guardrails for the application of this deduction.

#2 State Reaction to Federal Tax Reform. Those states that conform to federal standards will need to assess and react to any changes caused by the federal overhaul. Many states, especially those with higher taxes, are also scrambling to come up with laws to lessen the impact of federal changes on state taxpayers, particularly as it relates to tax and revenue impacts. Along the same lines, each jurisdiction will need to assess the impact of decoupling or following the Internal Revenue Code (IRC) on their budgets and their constituents, which may lead to withholding changes. The full impact of tax reform is still evolving, and your small business clients will rely on you to help them comply with new federal, state, and local tax codes.

#3 The Affordable Care Act (ACA). For tax year 2017, businesses that are defined as an applicable large employer (ALE), under the Employer Shared Responsibility (ESR) provision of the ACA, must provide a detailed reporting of healthcare coverage. Unlike the previous two years, there is no transition relief in 2017 for how employers offer coverage.  However, the IRS extended good faith effort relief for reporting incomplete or inaccurate returns for 2017 tax year. Good-faith transition relief does not apply to entities that do not file their returns on time. The IRS also extended the furnishing deadline for the form 1095-C to March 2, 2018, but it did not extend filing deadlines with the IRS. Additionally, in late 2017, the IRS began sending out the first notices of proposed employer shared responsibility payments for 2015 filing, letter 226-J. Employers have an opportunity to respond to this notice correcting any incorrect information, but these responses can be lengthy and complex;  some employers will need to research these notices, correct any errors in previous filing, and communicate with the IRS while also preparing for current year obligations – a huge undertaking that will undoubtedly require your help and guidance. Further, with the long-term future of the ACA unclear, some states are expected to begin proposing their own changes to health care policy, a development which could be impactful to employers in those states.

#4 Paid Leave Laws. Over 40 different states and local jurisdictions have passed paid sick leave laws applicable to private employers. And while there are fewer paid family leave laws on the books, 2018 has brought the nation’s most comprehensive paid family leave to New York State. However, a recent proposal in Congress, the Workflex in the 21st Century Act, would pre-empt the many paid leave laws at the state and local level, as well as any others expected to be introduced.

#5 Employee Verification. The 2017 changes to the Form I-9 (the Employment Eligibility Verification Form) and supporting guidance were minor compared to previous revisions, but employers will still need to ensure use of the correct form and delivery of the separate instruction pages to all new employees on their first day of employment. While documentation audits and worksite inspections seemed to level off in 2017, Immigration and Customs Enforcement has warned that it will quadruple the number of worksite inspections in the coming year, consistent with President Trump’s pre-election platform and post-election agenda regarding immigration reform.

These are just a few of the hot regulatory issues that are top-of-mind for small business owners today, and you’ve undoubtedly been hearing from your small business clients already with questions and clarifications galore. With a knowledge of these and other business regulations, you can help your small business clients understand their role in remaining compliant and avoiding costly penalties, which in turn will help their business grow.

Mike Trabold is director of compliance risk for Paychex, Inc. Paychex is a leading provider of human capital management solutions for small- to medium-sized businesses.

Michael Trabold

Director, Compliance Risk, Paychex

Three Steps to Assessing Your Client's HR Compliance Needs

Small business owners without a designated HR manager often feel overwhelmed by all of the HR responsibilities that come with having even just one or two employees. HR has evolved far beyond payroll and ensuring your employees are paid accurately and on time – although, payroll does remain a critical component of the employer-employee relationship. In fact, according to a recent Paychex Small Business Survey, 21 percent of today’s owners lack confidence in their organization’s ability to keep current with HR compliance.

From background checks to onboarding to employee handbooks, every step of the employee journey requires a deeper understanding of HR and employment laws than many small business owners are not prepared for. After all, they got into business because they had an idea – not because they are HR experts.

Upon starting their business or hiring their first employee, small business owners can struggle with where to start when it comes to HR. But, in a few steps, you can help your small business clients assess their HR needs and better understand how to get their HR functions up and running efficiently:

  1. Assess your client’s understanding of and compliance with employment laws. Is your client aware of the federal employment laws that impact his or her business? How about the state and local laws (especially if they conduct business in multiple locations)? According to those business owners who responded to the Paychex survey, the top three employer regulations they’re either not complying with or not aware of are: youth employment standards (42%), employee classification laws (37%), and overtime laws (36%). Getting a gauge on where your clients fall on the compliance spectrum can help guide your HR recommendations with regards to solutions and providers who offer trainings and can lift some of that compliance burden.
  2. Take stock of their current HR assets. Knowing what HR tools and processes your client already has in place will help give you both an idea of what they need moving forward. Start from the beginning of the employee journey and work from there. What are the tools your client currently uses for recruiting, onboarding, employee file and record retention, training and development, benefits administration, performance management, and employee relations? What about these tools and processes is working for them? What could be more efficient and how?
  3. Assess their HR execution. There may be HR policies and procedures in place, but how is your client communicating those to his or her employees? For example, is the employee handbook up-to-date and easily accessible to everyone? Automation is one way to increase confidence when it comes to key HR functions. Paychex’s study revealed only 30% of small businesses leverage technology to automate the onboarding process. Additionally, 38% percent of those surveyed report tracking time and attendance manually rather than via an automated system. Embracing automation to accomplish such critical tasks not only saves time, but can also reduce the risk of human error.

HR is evolving and it’s a critical component to any business that wants to succeed. The HR process decisions your clients make can impact their ability to grow and your ability to help them remain compliant and plan for the future. Starting conversations about HR and employment law early can help your client tackle the challenges that inevitably arise and discover solution providers who offer the HR tools and resources they need. Not only will this help cement you as a trusted adviser to your clients, it will also you ensure you’re getting the accurate HR information you need to remain compliant as you carry out financial activities on their behalf.

Mike Trabold is director of compliance risk for Paychex, Inc. Paychex is a leading provider of human capital management solutions for small- to medium-sized businesses.

Pages