What Types of Transactions are Subject to Sales Tax in the Media/Advertising Industry?

Nicole Doeschot, CPA, Tax Senior 

Missouri sales tax regulations are complicated, and they become extremely obscure when dealing with the sale of media/advertising. Typically considered a service industry,   these regulations can affect the way media, advertising and related companies do business.  It’s important to clearly understand the way Missouri interprets and enforces the sales tax law. 

In general, Missouri regulations state that if a sale involves the transfer of tangible personal property, it is a sale of tangible personal property and is subject to sales tax. This is specifically stated in Missouri Department of Revenue Chapter 103 Sales/Use Tax – Imposition of Tax. Therefore, according to Missouri sales tax law, if you deliver the final product to the client on a tangible piece of property (i.e. DVD), everything that went into that sale, including the services, is taxable. 

Missouri specifically says that “preliminary art” is not taxable. So, if it’s not the final product, but instead it’s just a rough cut that you are showing the client before completing the project, it is not taxable. This needs to be explicitly stated on the client invoice. 

There are a few caveats. Missouri Letter Ruling 1952 specifically states that if a business transfers the completed recording, film or video electronically through the Internet to a customer, the services are currently not subject to sales tax. This is because there was not a sale of tangible personal property since the final product was delivered electronically and not physically. 

To summarize, when determining if a transaction is subject to sales tax, the key is the method of delivery of the final product. To remain competitive in the industry, companies may consider making it a business practice to deliver final products via the internet and avoid the delivery of tangible products. If you must use a DVD, CD, etc., the entire sale then becomes taxable. The client needs to be aware of the implications of receiving the tangible product and the extra cost to them in the form of sales tax. 

A good way of making this a business practice is to add a disclaimer to the bottom of your invoices and estimates, stating that it is your practice to deliver the final product though electronic means, and if a tangible delivery method is requested, the client will be charged sales tax on the entire invoice.

Goals for Retirement Planning

Kris L. Pearce, CPA, Tax Senior

There are lots of items to think about when planning for retirement.  The earlier in your career this is done the better, and it can always be adjusted over time.  Any plan should be discussed with your spouse as well as your attorney, financial advisor, and accountant. In addition your plan should be reviewed when there is life changing moments, such as the birth of a child, marriage, or divorce.  

Each item below should be given a number between 1 and 5 with 1 being the least important and 5 being the most important to you.  After ranking, discuss each item with the individuals above to make sure the planning being done agrees with what is most important to you. 

1.  At what age do you want to retire and with how much income 
2.  Achieve a certain return on investment 
3. Provide for your favorite charity 
4. Provide financial security for loved ones 
5. Fund education for generations after you 
6. Provide safety net for items such as loss of job, death of spouse, or disability 
7. Maintain flexibility in the overall plan 
8. Avoid probate and other associated costs 
9. Avoid disputes among family members
10. Avoid the complexity of the plan 

This is not an exhaustive list but something to get you started if retirement planning has not been on your radar.  Finally, remember to discuss with loved ones so they are aware of what is important to you.

How Do I Know if a 529 Plan is Right for Me?

DeAnna Cassat, Tax Associate

It’s never too early to begin thinking about ways to save for your children’s college education. One of many plans available that you may not be aware of is a 529 plan. The 529 is an education savings plan operated by a state or educational institution designed to encourage savings for future college costs. Like all things, it has its advantages and disadvantages. This plan may be beneficial to you for the following reasons: 

• Regardless of age, anyone who plans to attend an eligible postsecondary education institution can be a beneficiary
• A state income tax deduction may be taken for the funding of the 529 plan
• A qualified distribution can be taken without federal income tax or penalty for qualified education expenditures
• Assets grow tax free 

The following are potential downsides to the plan: 

• A change to the investment option is only available one time per year
• These plans are subject stock market volatility
• May decrease your child’s eligibility in need-based financial aid 

While a 529 plan can be an advantageous way to save for college, make sure you know the potential risks before you create a fund. See the following article for more information:  http://www.latimes.com/business/la-fi-college-529-20111218,0,485132,full.story 

If you have questions or need assistance in determining if the 529 plan is right for you, please contact AMD or your tax advisor.

Is Disability Income Taxable?

Dan Schindler, CPA, Tax Associate

Depending on the type of disability income you receive, it could be fully taxable, partially taxable, or nontaxable.  Disability income could be from Social Security benefits or from disability insurance plans.  Let’s take a look at both scenarios. 

Social security disability benefits are treated in the same manner as other social security benefits.  To determine whether Social Security Disability is taxable, you need to look at your other income in addition to these benefits.  The IRS provides a break by taxing only a portion of the Social Security benefits depending on the amount of other income.  For individuals with total income between $25,000 and $34,000, 50 percent of your Social Security Disability is subject to income tax.  If you are married and file a joint return, you may have to pay taxes on 50 percent of your benefits if your total income is between $32,000 and $44,000.  However, if total income is above those $34,000 and $44,000 thresholds, 85 percent of your Social Security Disability is subject to income tax.  No one ever pays income taxes on more than 85 percent of his or her Social Security benefits. 

Disability insurance payments may or may not be taxable, depending on who pays the premiums.  If an employer provides short term and/or long term disability at no cost to its employees, disability benefits received by the employee are fully taxable.  However, premiums could be partially paid for by the employer and employee.  The disability benefits are taxable in proportion to how the premiums were paid.  Alternatively, if an individual purchases disability insurance and pays all the premiums, any disability benefits received are not taxable. 

If you have any questions related to disability income, feel free to contact AMD and we will be able to assist you.

Do You Owe the IRS Money?

Dan Schindler, CPA, Tax Associate

Are you one of the unfortunate taxpayers owing the IRS money?  Are you having trouble paying those taxes?  Well, the IRS has implemented some payment options to help taxpayers settle their tax liability.  Here are six tips to help fulfill your tax obligations without adding unnecessary burden. 

1. Electronic Funds Transfer You can pay the balance by electronic funds transfer, check, money order, cashier’s check, or cash.  You can also settle your tax liability with a credit card.  The interest rate on a credit card could be lower than the combination of interest and penalties imposed under the Internal Revenue Code. 
2. Additional time to pay Based on your circumstances, you may be granted a short additional time to pay your tax in full.  A brief additional amount of time to pay can be requested through an Online Payment Agreement application or with the help of a CPA. 
3. Installment Agreement If you owe $25,000 or less and cannot pay your tax liability in full at the time it is due, you may request an installment agreement in which you pay the liability in monthly installments.  However, you must file all required tax returns before an agreement can be offered.  Consult with your tax professional to discuss the available options regarding an installment agreement. 
4. Collection Information Statement Even if you owe more than $25,000, you could still qualify for an installment agreement if you complete Form 433F, a Collection Information Statement.  The IRS will review your assets and income to determine your ability to make payments. 
5. Tax bill payments If you receive a bill for unpaid taxes, you are expected to pay the tax due including any penalties or interest.  In the event you cannot make these payments, taking out a loan to pay the bill in full is probably a better option than making installment payments to the IRS.  Before you pay, make sure the IRS notice is correct since the IRS can make mistakes in processing. 
6. Paycheck withholding Taxpayers with a balance due may want to consider changing their W-4, Employee’s Withholding Allowance Certificate, with their employer.  This increases your payments throughout the year, making any balance easier to pay off. 

Ideally, it is best to budget and pay taxes when due to avoid interest and penalties, but there are options that will keep you out of jail.

The Bright Side of Inflation

Brent R. Robbs, Tax Associate

The prices of our lives’ necessities continue to rise.  Whether it’s a gallon of milk or a gallon of gas, we always seem to be spending more for less.  If you’re like me and think that it doesn’t seem fair, use this blog to help you cope with the extra price in the store or at the pump. 

By law, the dollar amounts for various tax provisions must be revised each year to keep pace with inflation.  This means that the extra money you’re spending on goods and services now will lead to increased tax benefits on your upcoming tax return. 

The chart below shows how inflation has affected personal exemptions and standard deductions from last year to 2011 and looking forward to 2012. 

Other tax benefits attributed to inflation include increases in tax bracket thresholds for each filing status, increases in tax credit phase out limits, and increases in annual deductible amounts for Medical Savings Accounts.  

While the numbers aren’t huge by any means, every little bit counts in today’s economy.  Inflation is never good for the consumer, but hopefully thinking about some of the tax benefits makes you feel a little bit better about it.

It’s Tax Season – Are you ready to file?

Chad R. Gall, CPA, Tax Supervisor

Like most taxpayers, the answer is probably no.  However, there are many things to think about before you sit down at prepare your tax return yourself or take it to a preparer.  First, you’ll need to round up some tax documents, such as

• Prior year federal and state returns
• W-2s for wages, salaries, tips and pensions
• 1098s for mortgage interest paid
• 1099s for interest, dividends, state tax refunds and other payments 
• K-1s from partnerships, S corporations, estates and trusts 
• Any correspondence you’ve received from tax agencies

Also there are a lot of questions that you need to think about that could result in significant deductions and lower your 2011 tax liability. 

• Did your marital status change during the year?
• Did you or any member of your household pay college expenses?
• Did you buy a new home last year?
• Did you make any major improvements to your home?
• Do you own a second residence or any other real estate?
• Were you a resident of, or did you have income in, more than one state during the year?
• Did you contribute to or convert any retirement plan?
• Did you receive distributions from any retirement plan?
• Did you make cash or noncash charitable contributions?
• Did you buy, sell, or trade any assets?
• Did you make any large purchases, such as a vehicle?

This is just a few items to think about, before you actually start filling out the forms.  There are also ways to lower your 2011 tax liability before the due date of your tax return, like contributing to an IRA, if eligible.

The good thing is that on January 4, the IRS announced that 2011 federal income tax returns do not have to be filed until Tuesday, April 17, 2012.  Giving all taxpayers a couple days to get your 2011 tax return filed or extended.  If you have questions or need assistance when gathering the information or preparing your 2011 tax return, please contact AMD or your tax advisor.

Balancing Higher Education Costs with Federal Tax Credits

Jane Groeteka, Tax Associate 

Getting an education is expensive, but if you take advantage of the federal tax credits that are available today, you can catch a bit of a break.  For postsecondary education expenses, you have the option of choosing between two federal tax credits, the American Opportunity Credit or the Lifetime Learning Credit.  The credits can be claimed for yourself, your spouse or your dependent.  You may be eligible to claim one of these federal tax credits if you fit one of the following descriptions: 

American Opportunity Credit

• The credit can be up to $2,500 per eligible student.
• It is available for the first four years of postsecondary education.
• Forty percent of the credit, or up to $1,000 is refundable if you have zero tax liability.
• The student must be enrolled at least part time and pursuing an undergraduate degree.
• Qualified expenses include tuition and fees, including course related books, supplies, and equipment.
• The full credit is generally available to eligible taxpayers with AGI’s of less than $80,000 ($160,000 for married couples filing a joint return). 

Lifetime Learning Credit

• The credit can be up to $2,000 per eligible student (only one per household).
• It is available for all years of postsecondary education.
• The credit is limited to your tax liability.
• The student does not need to be pursuing a degree.
• Qualified expenses include tuition and fees, including course related books, supplies, and equipment required to be paid to the institution.
• The full credit is generally available to eligible taxpayers with AGI’s less than $50,000 ($102,000 for married couples filing a joint return). 

In addition to these federal tax credits, student loan interest of up to $2,500 can be claimed as a tax deduction for eligible taxpayers who make less than $75,000 ($150,000 for married couples filing a joint return). This is an adjustment to income, so you can claim this deduction even if you don’t itemize deductions. 

Please contact us if you have any questions in choosing which of these federal tax credits can provide you with the greatest savings.

Mixed Service Inventory Costs

Jenny L. Meyer, MBA, CPA/ABV

We recently detailed some of the basics of the uniform capitalization rules under IRC Sec. 263A.  This code section requires that certain costs normally expensed be capitalized into inventory.  One of the cost components that must be considered are mixed service costs.  All companies have departments that perform administrative, service or support activities that are necessary for the overall operation of the company.  These departments are not directly involved in the manufacturing process, but they do benefit and support the manufacturing department operations and therefore are subject to UNICAP.  Some examples of these mixed service departments: 

• Accounting
• Human Resources
• Legal Services
• Technology
• Warehouse and Storage 

Each year when determining the 263A adjustment for tax purposes, an allocation of these mixed service costs must be included. So how do you determine how much of these costs to allocate?  A taxpayer could develop their own reasonable allocation method based on factors or relationships that reasonably relate the mixed service department costs to the benefits received.  Measures based on the total output of each department (i.e. number of hours provided to a department as a fraction of the total number of service hours provided to all departments) are acceptable. 

The IRS has also approved a simplified service cost method of allocating these expenses.  With this method, the production mixed service costs equal: 

Total production costs for the year (excluding mixed service costs and interest)              Total Mixed
Total business costs (excluding mixed service costs, interest and income taxes)        X        Service Costs 

The result is included with your additional 263A costs when you complete your UNICAP calculations. 

Mixed service costs are an important component and should not be overlooked when analyzing total inventory costs to capitalize.  These costs and the allocation should be reviewed annually when you calculate your 263A adjustment.

Congress Passes Extension of Payroll Tax Cut, Unemployment Benefits

After extended bickering on the matter late last year, the Republicans and Democrats in the House approved a $144 billion package to extend the payroll tax cut and unemployment insurance through the end of the year, putting differences aside until after the November elections.

The bill passed with a vote of 293-132.

The Senate approved the bill shortly after the House, in a 60-36 vote.

The payroll tax break gives workers a 2 percent tax break in their paycheck, and will benefit 160 million working Americans. The average worker will receive a $1,000 tax break over the course of the year.

The payroll tax extension will not be paid for with cuts elsewhere in the budget, which Republicans had earlier sought to avoid adding close to $100 billion to the deficit.

The bill will also extend long-term unemployment insurance and prevent doctors who treat seniors on Medicare from seeing a nearly 30 percent pay cut from the federal government at the end of this month.

The $30 billion cost of extending federal unemployment benefits will be paid for by allowing the federal government to auction off public airwaves currently used for television. It will also increase the contributions new federal workers must make to their pensions.

http://www.cbsnews.com/8301-503544_162-57380261-503544/congress-passes-extension-of-payroll-tax-cut-unemployment-benefits/