Author: Eric Buechler

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FASTER TAX BREAK FOR MANUFACTURERS, BIG OR SMALL!

This ought to speed things up for some Minnesota businesses.

On July 1, the Minnesota Department of Revenue changes the way it exempts “capital equipment” from state and local sales taxes. The tax break pertains to equipment used to make products that eventually will go to retail markets for sale.

Businesses buying or leasing this manufacturing equipment actually have been able to claim a refund of state and local sales taxes after the purchase. To capture it, they submitted a form (ST11), which involved creating a worksheet with numerous details. In addition, they were limited to two refund requests each year, which might mean tying up sales tax refund dollars for months in some cases.

That cumbersome system changes on July 1. Businesses buying/leasing capital equipment will capture the sales tax exemption at the cash register, so to speak. They get it right away, at the time of purchase, Minnesota Revenue says.

The buyers do need to present one form, called a Certificate of Exemption (Form ST3), to the equipment seller. It looks a lot less demanding than the prior refund request.

First, does your purchase qualify as “capital equipment?” Generally, it will if the machinery is essential to make something that ultimately is sold to consumers. The exemption has a surprisingly long reach, even to the roots of production, such as research and development equipment.

It’s not only for industrial-sized manufacturers. Minnesota Revenue offers an example of a key-making machine in a hardware store as one eligible piece of “capital equipment.” Some hardware and software for online sales also might qualify, depending on the circumstance.
There also are a host of non-eligibles. For a rundown, see http://www.revenue.state.mn.us/businesses/sut/Pages/Qualifying_For_CE_Refund.aspx and Sales Tax Fact Sheet 103.

This is an area where professional interpretation of rules could help a small manufacturer or business owner. (For example, “capital equipment” is not the same thing as “capitalized assets,” Minnesota Revenue notes.) We at EricJohn Ltd. are equipped to tell you whether your business purchase qualifies for the sales tax exemption and how to capture it.

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IN APPRECIATION FOR THEIR SERVICE

Minnesota recognizes the service of wounded veterans and those who died in active duty with a major property tax break. In fact, last year, more than 13,000 taxpayers had the market values of their homes reduced by $1.8 billion, the Minnesota Department of Revenue tells us.

But they have to apply, and the deadline for claiming “market value exclusion” on their homes for 2015 is July 1. The 2015 market value is a primary factor for determining property taxes payable next year.

The exemption can erase as much as $300,000 of the market value of a homestead property from taxation. That’s the maximum for any veteran of the U.S. armed forces who is certified as 100 percent disabled by the U.S. Department of Veterans Affairs. Spouses of veterans who died while in active service also qualify. The state tax benefit can last as long as eight years.

Veterans who are considered 70 percent or more disabled can obtain an exemption covering as much as $150,000 of their home’s value. Surviving spouses also can claim it, if the eligible veteran dies. So can a Minnesota taxpayer who has federal approval as a “primary family caregiver” of a veteran with 70 percent or more disability from service, whether or not the veteran owns a home in the state.

Veterans who want to take advantage of the market value exclusion can find applications at their local county assessor’s office. If the application arrives by July 1, the exclusion will apply to property taxes payable in 2016, Minnesota Revenue says. The main exception to that rule is for manufactured homes, which are taxed as personal property in the same year as assessed.

Eligible veterans must apply each year for the tax benefit, according to the state agency.

While generous, the exclusion is detailed and requires service-related documentation, including an honorable discharge. One source to check is Minnesota Revenue’s Property Tax Fact Sheet 13, available at http://www.revenue.state.mn.us/propertytax/factsheets/factsheet_13.pdf.

Of course, we at EricJohn Ltd. also can help veterans deal with the details for this Minnesota tax break.

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YOUR CHILD MAY PAY LOWER PAYROLL TAXES BY WORKING IN THE FAMILY BUSINESS

Thinking of introducing the next generation to the family business early, maybe through a summer job?

Enterprising parents can find some encouragement waiting in federal tax codes, of all places. While their children do pay income taxes on earnings, they often need not pay Social Security (FICA), Medicare or federal unemployment taxes (FUTA) through most of their teens – under the right circumstances.

Yes, there are a couple of conditions necessary to qualify your children for those exemptions:
o Type of business – The family enterprise must be a sole proprietorship operated by a parent or a partnership of parents with no other partners, including other family members or non-parent spouses. Corporations and estates also do not qualify, even if they are operated entirely by the parents, according to the Internal Revenue Service.
o Ages of the employees – The children are exempt from Social Security and Medicare taxes until age 18; they are exempt from federal unemployment taxes until age 21.

Standard withholding for income tax on the child’s wages still applies.

Why might a small family business be interested in the exemptions for children? For one thing, if his/her child is not liable to those payroll taxes, the parent doesn’t have to pay the standard employer’s portions of them, either. Another advantage is that a sole proprietor can lower his or her own income – and tax – by paying his son or daughter for their work. CPA firm Riley & Associates PC of Newburyport, Mass., points out these and some other more complex advantages online at http://cpa-services.com/special_hir.shtml.

For the IRS’s take on family workers – including employing spouses and parents – see Publication 15 under “Family employees.”

We at EricJohn Ltd. also can guide parents through the intricacies of employment taxes.

Maybe this is the year your child can jump into the family business for learning and profit!

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QUICK DOWNTIME AHEAD

QUICK DOWNTIME AHEAD

The techs have to tinker, so the Minnesota Department of Revenue is turning its online systems off for a few hours on Wednesday evening (6/10).

It’s just scheduled maintenance, the state tax agency says. The outage is scheduled from 4:30 p.m. to 9:00 p.m.

Minnesota Revenue also reminds us that the downtime does not change existing tax and reporting deadlines.

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LOOKING FOR YOUR REFUND?

Now comes the reward for those hours spent figuring out 1040s and calculating M1s!

Many Minnesota tax filers already might have their direct deposit refunds waiting in their bank accounts. At the same time, if they sent in their 2014 income tax returns close to the April 15 deadline, those refunded dollars might not have appeared yet, and that’s no reason to worry yet.

The Internal Revenue Service offers an online tracking system called “Where’s My Refund?” to check as soon as 24 hours after return hits its computers. Locate it online through http://www.irs.gov/Refunds. It allows taxpayers to follow the return through three stages: When it is received, when a refund is approved, and when the refund has been sent.

That’s helpful. But if the refund hasn’t arrived, it isn’t time to panic yet. The IRS tells taxpayers to wait for at least 21 days – or the end of the first full week in May – before starting to hunt for a “missing” refund from an electronically filed return. (In fact, IRS phone reps can’t even help you look within those first three weeks.) Nine out of 10 refunds are issued within 21 days, the agency assures.

Taxpayers who filed paper returns must wait six weeks before launching a search for a refund with the IRS.

Minnesota also offers a refund tracker online for its taxpayers, and it also is named “Where’s My Refund?” With a few identifying details, Minnesota’s Department of Revenue will tell taxpayers the status of a refund from an income tax return filed within the last 12 months. Find that service at https://www.mndor.state.mn.us/tp/refund/_/.

Minnesota’s tracking service also includes state property tax refunds. This year, taxpayers who filed paper returns for property tax refunds may not be able to track them until after July 1, Minnesota Revenue says.

If you’re not in a hurry to claim your refunds, here’s when the clock expires. Minnesota law says a refund can be requested within 3½ years from the normal filing deadline (usually April 15) or from an extended deadline.

EricJohn Ltd. can advise taxpayer on income tax and their refunds. As an enrolled agent, owner Eric Buechler also represents taxpayers directly in tax matters before the IRS.

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DOWN-TO-THE -WIRE TAX ACTION

If you won’t have your federal (and state) tax returns ready by the end of the day on Wednesday (April 15), it’s probably time to join the millions of taxpayers asking for an extension.

The extension adds another six months to the deadline, making it Oct. 15. The IRS won’t ask you why you need it. BUT – and it can be a big “but” – the IRS still expects you to estimate income and pay any taxes by the normal deadline.

You accomplish that on Form 4868 or “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” The extension generally is automatic. For a copy, see http://www.irs.gov/pub/irs-pdf/f4868.pdf.

The clock is ticking with this. Whether you’re sending it electronically or by “snail mail,” it must be recorded or postmarked by the end of the day on April 15 to avoid penalties.

Now, from a technical standpoint, if you are absolutely certain that you will not owe any income taxes, you don’t need to file Form 4868. You can file your normal 1040 return later in order to capture your refund.

However, to be safe, we at EricJohn Ltd. advise filing the application for extension, whether or not you think you need it. Miscalculations can happen, and there is a late filing penalty in addition to late payment penalties for any unpaid tax.

WHAT THE IRS WANTS
In a nutshell, an extension is not valid unless your tax liability is estimated properly, using available information. Don’t break out in a sweat just yet! You can come up with a reasonable estimate. As a starting point, did you make more or less money than a year ago?

If you have some figures, work with that information, even if you are missing some income or expenses. Then make a good faith estimate of what you owe. Spending the time to pull together realistic figures could save you hundreds – maybe even thousands – in tax penalties.

Next, send a tax payment based on your estimate! You can do that electronically at the IRS web site (www.irs.gov) or enclose a check in the envelope. But don’t omit that step, even if your estimate is shaky.

Finally, don’t forget any state taxes you owe. In Minnesota, you don’t have to file an extension form. BUT – just as with the federal return – you must pay tax due to avoid penalties.

Minnesota Department of Revenue also accepts tax payments through its Web site. Here’s a pointer about extensions and payments: http://www.revenue.state.mn.us/individuals/individ_income/Pages/Filing_Extensions.aspx.

We at EricJohn Ltd. wish you easy and accurate filings for Tax Day!

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DETAILS, DETAILS, DETAILS!

It’s just days, maybe hours, until the filing deadline for federal and Minnesota income taxes. What can we taxpayers do to beat the clock and make sure we get our due, too?

The Minnesota Department of Revenue offers some tips on avoiding errors. The hints make Revenue’s job easier; at the same time, some also can speed up refunds. And some are common sense:

o Use official names shown on Social Security cards. This is not the place to abbreviate “David John” to “D.J.” The computers that process returns aren’t amused by nicknames. Speaking of accuracy, don’t take your W-2s for granted just because they came from your employer.

o Check and re-check Social Security numbers and account numbers for direct deposit of refunds. Come to think of it check all the numbers on your federal 1040 or state M1 returns – especially if you calculated by hand. We all make mistakes, and they can be costly on a tax return.

o File some type of return or ask for an extension by April 15, and pay as much of what you owe as possible. This is a situation in which something is a much better than nothing! The paperwork might linger with an extension, but the taxes are due.

o Minnesota Revenue advises you to pay your taxes electronically, if possible. Both state and federal governments both have been urging online payments because they are quicker and easier to process. If you’re expecting a refund, choose direct deposit to one of your bank accounts. Going direct makes it easier on Revenue and faster for you.

o If you’ve moved into or out of Minnesota, make sure your tax refund or other letter notices will follow. In Minnesota, place an X in the “New Address” box. Revenue’s processing machines might not pick up an address change if that box isn’t checked. In fact, it’s a good idea to tell the tax people where you are immediately after a move.

A tax preparer typically will check on details like these; it’s one advantage of dealing with a pro. If you’re not quite prepared for Tax Day, give us a shout at EricJohn Ltd. We can help in the rush!

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PRESIDENT, CONGRESS HONOR SLAIN POLICE OFFICERS WITH TAX BENEFIT

Taxpayers who wish to donate to the families of two New York City police detectives killed in December will be able to deduct contributions made early this year on their 2014 tax returns.

Under a new law signed by President Obama this week, donors making cash gifts between Jan. 1 and April 15 this year can claim the charitable contribution for tax purposes as if they had occurred in 2014.

The Slain Officer Family Support Act of 2015 also provides that a telephone bill showing the name of a tax exempt organization accepting the donation, as well as the amount and the date of the gift, will satisfy recordkeeping requirement.

New York Detectives Wenjian Liu and Rafael Ramos were sitting in a marked police car in the afternoon on Dec. 20 when a gunman approached and shot both at close range.

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AT LEAST YOUR REFUND IS NOT LOST

An inquiry letter now going out from the Internal Revenue Service may make you cringe a bit, but you’ll want to read it closely before you panic.

Verification Letter 4464c confirms that you filed your taxes, but – and here’s the cringe – it also says the IRS is holding up any refund to make a thorough review of some type of information on your tax return.

“Typically, the IRS checks with a third party, such as the employer, to verify information on the return,” writes TaxPro Weekly, a newsletter for the accounting profession.

The letter does not announce an audit. However, it is telling you not to expect any refund to arrive for another 60 days. What should you do? Typically, taxpayers should do nothing but wait for the entire 60 days. If a refund hasn’t arrived by then, the taxpayer can call an IRS phone number to check on it.

With millions of 2014 income tax returns flooding into its computers, the Internal Revenue Service is trying to filter out bogus returns before taxpayers get bilked. Letter 4464c comes from the Integrity & Verifications Operations Office, which is charged with preventing fraudulent refunds.

Send an email or make a phone call to us at EricJohn Ltd. to find out more about Letter 4464c notices.

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BEWARE OF TAX PREPARERS ASKING FOR OBAMACARE PAYMENTS.

We passed along a warning last month about identity thieves trolling for personal information from taxpayers with email deceptions and phishing schemes.

Now the Internal Revenue Service is worried about unscrupulous tax preparers who have devised a way to pick clients’ pockets using the new health insurance reporting rules from the Affordable Care Act or “Obamacare.”

This latest scam revolves around the “shared responsibility payment,” which some – but definitely not most – taxpayers owe to the government. It’s basically a fee levied on those who did not have health insurance for part or all of 2014 and it is declared on income tax returns.

Some crooked tax preparers are telling clients to make the shared responsibility payment directly to them. They might claim it is necessary because of \the client’s immigration status or they might offer a discount on the fee. In some cases, they seek payment from taxpayers who are exempt under law and do not owe the fee at all.

The IRS says no one should write a check for a shared responsibility payment directly to a tax preparer. The fee is calculated as part of the 2014 tax return. So, if it does apply, the fee is figured in with any other taxes owed to the government on the return.

What precautions can you take? On its Web site, the agency offers a directory of tax preparers for people who would like to check for credentials. See http://irs.treasury.gov/rpo/rpo.jsf. The IRS also offers an online questionnaire to determine if you need to pay a shared responsibility fee in the first place.

There’s still time before April 15! We at EricJohn Ltd. can help you satisfy the health insurance reporting requirements on your 2014 tax return professionally and accurately.

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