December 27, 2016

Take Advantage of Tax Savings During a Business Expansion

As companies are looking ahead at the future of their business, several are considering expanding to add additional resources, keep up with increasing demand or expand into other markets.  If expansion is part of the forecast, discuss with your tax advisors now so you don’t miss out on potential tax savings strategies.  Here are a few examples:

  1. Research & Development Tax Credit—if your expansion involves research expenses for a new product line or enhancements to current products, you may be eligible for a federal tax credit.
  1. Cost Segregation Study—if your expansion involves new construction or a new building, a cost seg study will break down the building assets to accelerate depreciation deductions.
  1. IC-DISC—if your expansion involves growth in foreign exports, you may want to consider creating an IC-DISC. With the creation of this entity, a U.S.-based company can convert its export sales income, which is taxable at ordinary income rates, into qualified dividends, taxed at capital gains rates. This creates an effective tax savings of 15% – 18% each year.
  1. Missouri State Credits—many state credits go unused every year. If your expansion involves hiring new employees, you may qualify for the Missouri Works Program. These incentives can add up to several thousand dollars per new job.  The application for this credit must begin before the new hiring starts.

If you’re considering expansion, please contact an Anders advisor to make sure you maximize your tax benefits.

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December 13, 2016

IRS Announces New Waiver to 60-Day Limit on Retirement Plan Rollovers

Rolling over a retirement plan into another employer plan or IRA can be a difficult process if unforeseen circumstances arise. Typically, a taxpayer must roll a distribution received from an employer plan retirement account or an IRA to another employer plan or IRA within 60 days after receiving the distribution to avoid taxation. The IRS has had the ability to waive this 60-day limit in certain circumstances, but a private letter ruling was usually needed.

The IRS has recently provided a new procedure for taxpayers to complete a simpler “self-certification” in certain circumstances. Taxpayers who meet one of 11 criteria, are able to waive the 60-day limit without needing a private letter ruling and the distribution is not subject to tax. Some of the criteria include:

  • An error was committed by the financial institution
  • The distribution check was misplaced and never cashed
  • The distribution was deposited into an account the taxpayer thought was an eligible retirement plan
  • The taxpayer’s principal residence was severely damaged
  • A member of the taxpayer’s family died or was seriously ill

Revenue Procedure 2016-47 covers all 11 criteria and includes a sample letter to provide to the plan administrator or trustee verifying self-certification and claiming which condition(s) are met. Ordinarily, the IRS and plan administrators/trustees will honor a taxpayer’s truthful self-certification that they qualify for a waiver under these circumstances; however, it is subject to later IRS audit.

Taxpayers are encouraged to transfer retirement plans via direct rollover or trustee-to-trustee transfers instead of doing a regular rollover to avoid delays and some of the restrictions and headaches that arise during the rollover process. For more information on this new revenue procedure or help with retirement plan rollovers, contact an Anders advisor today.

 

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December 7, 2016

Missouri Delivery Charges May Be Subject to Sales Tax

There has been recent confusion surrounding delivery charges (freight out) regarding whether a seller is required to charge sales tax.  After a recent 2016 Missouri Supreme Court decision on Alberici Constructors, Inc., the Missouri Department of Revenue sent out notices to business owners about the topics of the case and reminded people that delivery charges “may be subject to sales tax”.

These notices were sent because the Department is now required to notify the public if a decision modifies the taxability of an item, and a reasonable person would not have expected the decision based on prior law. The notice stirred up a host of questions as it seems unclear as to the modification to the law.

The Missouri Department of Revenue’s notice does not state that the decision in Alberici Constructors modifies the taxability of an item, but merely warns taxpayers that the decision may require collecting/remitting tax on delivery charges if the charges are intended to be part of the sale.

If delivery charges are “intended” to be part of the sale, then delivery charges are taxable – this has always been the case. 

Part of the Sale

There are a number of factors that are relevant to determining whether delivery is intended to be part of the sale, including:

  • When title passes from the seller to the purchaser – when ownership of the tangible personal property passes to the customer
  • Whether delivery charges are separately stated – separately stating does not alone exempt the charge from tax, however, if you don’t separately state the charge then it’s presumably included in the sale price and is subject to sale tax.  Separately stating the charge is a relevant factor, but it is not the determining factor
  • Who controls the cost and means of delivery – if your customer arranges the delivery/freight/shipping and gets billed directly, then the charge does not come into play for the seller
  • Who assumes the risk of loss during delivery
  • Whether the seller derives a financial benefit from delivery – for example, if the seller is not using their own vehicles to deliver and pays a 3rd party, and then marks up the charge on their invoice, it would be subject to sales tax

Missouri Statute/Section 144.010.1(4) defines “gross receipts” as the total amount of the sale price of the sales at retail including any services other than charges incident to the extension of credit that are a part of such sales made by the businesses herein referred to, capable of being valued in money, whether received in money or otherwise…

Missouri Statute 144.605(8) defines “sale price” as the consideration including the charges for services, except charges incident to the extension of credit, paid or given, or contracted to be paid or given, by the purchaser to the vendor for the tangible personal property, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and any amount for which credit is given to the purchaser by the vendor, without any deduction there from on account of the cost of the property sold, the cost of materials used, labor or service cost, losses or any other expenses whatsoever…

These taxing statutes have not changed as a result of the Alberici decision.

In determining whether a delivery charge is a part of the sale transaction, the intention of the parties is the guiding factor – which is what the Alberici Constructors case discussed.

If you have questions about whether or not delivery charges are subject to sales tax for your business, please contact Anders.

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