As is typical throughout the tax year, some states change their tax rates and their apportionment ratios and methods. Calendar and fiscal taxpayers alike are affected by the changes. And based on where your particular entity may be in its processes, you could be extending your returns, preparing or finalizing your returns, completing year end or quarterly tax provisions, or already into your quarterly estimates for 2019. The following is a summary of the majority of changes.

State corporate tax rate changes:

2018 state corporate tax rate changes

• The District of Columbia dropped its tax rate from 9% in 2017 to 8.25% for 2018 and beyond.
• Idaho dropped its tax rate from 7.4%, plus $10 in 2017 to 6.925%, plus $10 for 2018 and beyond.
• Indiana has been gradually lowering its rate. The tax rate changed from 6.0% for July 1, 2017 through June 30, 2018, to 5.75% for July 1, 2018 through June 30, 2019, to 5.5% for July 1, 2019 through June 30, 2020. It will continue to drop to 5.25% for the same period ending June 30, 2021, and to 4.9% for after June 30, 2021. Taxpayers need to use a days per period calculation for years that begin in one period and end in another.
• Kentucky changed its tax rate for 2018. Rather than the graduated income tax rate system it had, for 2018 and beyond, it is a straight 5% tax for all corporate taxpayers. The LLET has not changed.
• In September 2018, Maine significantly lowered its tax rates when it changed its graduated income tax system by increasing the amount of taxable income allowed at each of its lowest tax brackets. For tax years beginning in 2018, the new amounts are: $0-$350,000: 3.5%; $350,001-$1,050,000: $12,250 plus 7.93%; $1,050,001-$3,500,000: $67,760 plus 8.33%; $3,500,001 or more: $271,845 plus 8.93%
• Mississippi has begun to reduce its corporate tax burden by phasing out tax on the first $5,000 of taxable income gradually through the year 2022. For 2018, the first $1,000 of taxable income is taxed at 0%, while $1,000 - $5,000 is taxed at 3%. For 2019, the first $2,000 is taxed at 0%. At the same time, the franchise tax, which is based on the corporation's capital, is being phased out over the next 10 years. Each year the tax rate will drop by $0.25 per $1,000 until it is completely gone as of January 1, 2028.
• For 2018 and 2019, New Jersey added a 2.5% surtax on corporations with allocated taxable income over $1 million. This surtax will decrease to 1.5% for 2020 and 2021.
• New York's capital base tax rate has been decreasing. It drops to 0.075% (0.056% for qualified manufacturers) for tax years beginning in 2018 and to 0.05% (0.038% for qualified manufacturers) for 2019. For 2020, it drops to 0.025% (0.019% for qualified manufacturers) and is eliminated for tax years beginning in 2021 and after.
• Utah slightly decreased its tax rate from 5% in 2017 to 4.95% for 2018 and beyond.

2019 (and beyond) state corporate tax rate changes

• For 2019, Georgia has dropped its rate from 6% to 5.75%.
• For tax periods ending in 2019, New Hampshire has decreased its tax rate on taxable business profits from 8.2% to 7.9% for gross income over $50,000. The enterprise business value tax rate has also been decreased from 0.72% to 0.675%.  Additionally, for tax periods ending in 2020 and 2021, the rates will drop to 7.7% and 0.6%, respectively, and then decrease further to 7.5% and 0.5%, respectively for periods ending in 2022 and beyond.
• New Jersey also is changing their minimum tax for each member of a combined return to $2,000 each for tax years ending on or after July 31, 2019.
• For tax years beginning in 2019, North Carolina has decreased the income tax rate from 3% to 2.5%.
• For 2020, Missouri's tax rate will decrease from 6.25% to 4%.

Pass-through state tax rate changes:

• Effective for tax years beginning on or after January 1, 2018, Connecticut has imposed a pass-through entity tax on S corporations at a rate of 6.99% of their taxable base.
• Idaho reduced its withholding tax rate from 7.4% for 2017 to 6.925% for 2018.
• North Carolina reduced its withholding tax rate from 5.499% for 2018 to 5.25% for 2019 and beyond.

State apportionment changes:

• North Carolina is on a single sales factor formula as of 2018.
• Delaware, Maryland, and Utah are phasing in single sales factor apportionment over the next few years. Refer to the specific state for exact dates and formulas for each year during the phase in period.
• For years beginning on or after January 1, 2020, Missouri will require the use of a single sales factor apportionment formula.
• Kentucky, Montana and Oregon switched to market-based sourcing for tax years after 2017.
• Colorado, Indiana and New Jersey have switched to market based sourcing for tax years after 2018.
• Missouri and New Mexico require market based sourcing for tax years after 2019.

Connect With Us

If you would like to discuss how Federal and State changes to tax codes affect your situation, please call the State and Local Tax team at 716.847.2651 to schedule a complimentary Tax Situation Review. Or, click on the button, give us your contact information, and a member of our staff will connect with you to schedule a discussion.

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As scamming tactics become more sophisticated even knowledgeable taxpayers can get scammed

With taxes on everyone’s mind this time of year, it’s not surprising that this is also a particularly busy time of year for tax scams. Some of the scam tactics that get covered in news stories aimed at the general public seem so obvious that it’s easy to get over-confident and overlook the more subtle tricks scammers use to get access to your personal info and financial resources.

Most folks that read alerts from accounting firms know enough about their taxes to understand that a phone-caller demanding an immediate payment via gift cards to resolve an outstanding tax liability is not from the IRS. But the fraudsters adapt so quickly that by the time the IRS can describe one scam they’ve already moved on to the next plan to rip off the unwary.

How to Distinguish Fraudulent Contacts from Official IRS Business

The best way to protect yourself is to focus less on the description of any individual ruse and more on the identifying details that can help you distinguish fraudulent contacts from official IRS business. Here’s a few tips for confirming that a communication comes from the IRS and not a tax scammer:

• Almost every IRS correspondence with a taxpayer starts with at least one snail-mail letter delivered by the U.S. Postal Service. If the first contact you get on an issue is by phone or e-mail, do not provide personal information or click on links until you take steps to independently verify the authenticity of the contact.

• Be suspicious of any purported IRS contact that doesn’t start with a letter. Some recent scams have started with seemingly friendly calls or e-mails from a less threatening division of the IRS like the Taxpayer Advocate Service. An unexpected call or e-mail suggesting that you are entitled to some kind of refund of which you weren’t aware should serve as a red flag.

• The last four digits of your Social Security number are easier for hackers to obtain than your full identity. Any unexpected IRS contact that claims to be official but includes only the last four digits of your tax i.d. number should be treated with suspicion.

• If scammers have already hacked your tax records and you aren’t aware, it’s possible that the first suspicious event you see will be a refund deposited to your bank account that you did not file for. If that happens, you need to act quickly before things go from bad to worse. The IRS has specific instructions on how to notify them and resolve the problem.

• When the IRS tells taxpayers that they owe money, the Service instructs them to make payments to the “United States Treasury.” Any instruction to pay an agency or individual other than the U.S. Treasury should be treated as suspicious and reported to the IRS via e-mail at phishing@irs.gov.

• According to the IRS, it does not:
  • Demand payment without an opportunity to question or appeal the amount the Service says you owe.
  • Call to demand immediate payment using a specific payment method like a debit card, gift card, or wire transfer.
  • Call about an unexpected refund.
  • Threaten to bring in local police, immigration officers, or other law-enforcement agencies. The IRS cannot revoke your driver’s license, business licenses, or immigration status.

How to Handle Scam Contacts

Your response to a potentially fraudulent IRS contact might vary depending on what you know about your current tax situation.

For example, if you get a call or e-mail purporting to be from the IRS and you think you might actually owe taxes or be due for a refund, consult with your tax advisor. If you don’t have an advisor, you can verify the authenticity of the contact by calling the IRS at 1-800-829-1040. That’s the main IRS info line and hold times can be significant. But the time you spend on hold could pale in comparison to the time you might spend resolving a theft of your tax information.

We also recommend that if you get a call or e-mail purporting to be from the IRS and you think it’s a fraud, end the contact immediately. If it’s a phone call, hang up. If it’s an e-mail, do not click any links. You can report suspected fraud attempts to phishing@irs.gov or to the Treasury Inspector General’s IRS Impersonation Scam Reporting web page.

• Most importantly:
  • Never provide personal information to someone who initiates a phone contact with you, and
  • Never click on links in e-mails that you weren’t expecting.

The key to protecting yourself from tax-related fraud is to remember that time is on your side. A contact that instructs you to act immediately should always be verified before you make any payment or share any sensitive information. The more urgent an unexpected tax claim is, the more serious and immediate the alleged consequences are, the more likely it is that you’re being targeted for fraud.

Don’t Forget to Protect Your Loved Ones from Tax Scammers, Too

Even if you stop 100% of the fraud attempts on your tax accounts, you can still have your life disrupted if a family member, especially a dependent, falls victim to a scam.

Elderly taxpayers on a fixed income might be easier for scammers to bully into an immediate payment over the phone, especially if their pension or retirement accounts are threatened. Your kids might pay off a fraudster without saying anything to you because they fear you’ll be angry with them for messing up their taxes. Take some time to talk to family members about protecting their tax information and communicating openly with you about tax issues.

For more information on this topic, check out the IRS web page focused on tax scams and consumer alerts, or contact a member of the Freed Maxick Tax Team at 716. 847.2651 or connect with us here.

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Author: Lindsey Miller

There’s no secret that the new tax plan approved by Congress and sent to President Trump is very generous to many different types of companies and industries, including those that have foreign income producing activity.

In 2018, both small and large businesses will see significant change to their tax situation, and will need to do planning early in the year to maximize tax benefits throughout the year.

Key Changes in the New Tax Plan for Companies

The 500-page bill includes the following key changes for US based companies with domestic and foreign operations:

1. Corporate tax rate     

1. Cut from 35% to 21%
2. Repeals the corporate AMT
   

Freed Maxick Insights

With the new rate beginning in 2018, it gives corporations very little time to push through deductions at the higher rate. With such a drastic decrease to the corporate rate (40%), it could result in pass-through entities converting to C corporations.

2. Pass Through businesses   

1. Establishes a 20% deduction of certain business income, but deductions are limited once the income reaches $157,500 for singles and $315,000 for joint. 

Freed Maxick Insights

As mentioned above, it is possible to see pass-through businesses convert to C corporations with the new corporate tax rate.

But be careful, this provision does not apply to all pass through businesses. Certain specified service trade or businesses are excluded.

 

3. Deductions and Credit

1. Numerous deduction and credits eliminated including Domestic Production Activities, non-         real property like kind exchanges and others
2. Research and development expenses are now amortized over five years, beginning in 2023
3. Rehabilitation credit remain but have been modified
4. Interest expenses limited to 30% of modified taxable income number 

Freed Maxick Insights

With a 40% decrease in the corporate tax rate, the effect of losing these deductions or credits could increase your effective tax rate. Tax credits are still available, so if your business largely relies on tax credits, it will be important to understand the impact and what remains. 

 

4. Bonus Depreciation

1. Increased from 50% to 100% deduction of costs of depreciable assets can be taken in one year but equipment must be purchased after September 27, 2017, and before January 1, 2023

Freed Maxick Insights

This will be a huge planning opportunity for many businesses; with no taxable income limitation on bonus depreciation (unlike Section 179 expensing), businesses will be able to take advantage of fully expensing acquisitions (new or used!) in the year placed in service.

 

5. International Tax

1. Current "worldwide" tax system changed to a territorial system where corporations will not         be taxed on foreign profit
2. Companies can repatriate cash held overseas by paying a one-time mandatory tax, based on foreign earnings and, at a tax rate of 15.5% on cash and 8% on property 

Freed Maxick Insights

With the new tax on deemed repatriation, it may be great time for businesses to bring money back and invest in the U.S.

Of course, if you have any questions or concerns, call the Freed Maxick Tax Team at 716.847.2651 to discuss your tax situation. Or, connect with us here to schedule a Tax Situation Review.

For more insight, observations and guidance on the new Tax Cuts and Jobs Act, visit our Tax Reform webpage.

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Author: Lindsey Miller

After months of debate, acrimony and drama, the US Congress passed the Tax Cuts and Jobs Act, and sent it to President Trump for signature.

Starting January 1, 2018, many individual taxpayers will see significant change in how they plan and prepare their taxes.

 

Key Changes in the New Tax Plan for individuals

The 500-page bill includes the following key changes for individual taxpayers and their families:

1. Seven tax brackets remain, but income taxes cut

1.   Rate changes expire in 2025, unless extended by congress
2.   Look for initial withholding guidance from the IRS in January
3.   Indexed for inflation by a chained CPI

Freed Maxick Insights

This will give rise to many planning opportunities in the year before the new brackets expire. In addition, with the new brackets taking effect in 2018, it does not allow much time for pre-change planning.

2. Standard deduction

1.   Nearly doubled
2.   Indexed for inflation by chained CPI
3.   Personal exemptions eliminated

Freed Maxick Insights

With some itemized deductions being eliminated or limited, there will be an increase in the amount of taxpayers taking the standard deduction. However, the increase to the standard deduction amount will most benefit those taxpayers who have not itemized in the past.

 

3. Other Itemized Deductions

1.   Mortgage interest deduction remains, but is modified
2.   State and local tax deduction is limited to $10,000, may choose to include sales taxes as an alternative. Congress also acted to prevent pre-payment of taxes to avoid future limitations
3.   Medical expenses deductions temporarily enhanced by lowering the threshold to 7.5% of AGI in the 2018 and 2019 tax years
4.  Alimony no longer tax deductible and the associated income is no longer taxable

Freed Maxick Insights

It was originally thought that the state and local income tax deduction would be completely eliminated. While that did not end up being the case, it is worth it to note that the $10,000 limit includes both income and property taxes. Therefore, this provision will still severely limit the itemized deductions of many taxpayers. But don’t consider prepaying your 2018 state income taxes in 2017. Those amounts will not be deductible until 2018.

 

4. Alimony

     a. For divorce or separation decrees after 2018, alimony is no longer tax deductible to the             payor and the associated income is no longer taxable to the recipient 

5. Affordable Care Act

     a. The bill does not repeal the Affordable Care Act’s taxes on net investment income, the             additional Medicare tax, medical device tax and others
     b. The bill does repeal the individual mandate requirement (starting 2019)

6.. Estate tax exemption

     a. Doubles the exclusion amounts
     b. Generation skipping tax exemption is also doubled

Freed Maxick Insights

Time to revisit your Estate Planning. There should be many opportunities to minimize the estate tax burden. 

7. Alternative Minimum Tax

1.  The exemption increased from $54,300 to $70,300 for singles and from $84,500 to $109,400       for joint filers

Freed Maxick Insights

Maybe next time this will finally go away! Contact us and let’s see how this affects you.

8. Education

1.  Up to $10,000 in 529 savings plans can now be used for tuition at private and religious K-12       schools
2. Deductions for classroom supplies bought by a teacher remains
3. Tax free status of graduate student tuition waivers remains
4. Student loan interest deduction remains

9. Families

1.  Child Tax Credit increased from $1,000 to $2,000. Credit is refundable up to $1,400. The plan also increases the income level from $110,000 to $400,000 for married tax filers
2. $500 credit for each non-child dependent now allowed

Freed Maxick Insights

This provision will offset some of the impact of eliminating personal exemptions for families with multiple children.

 

Of course, if you have any questions or concerns, call the Freed Maxick Tax Team at 716.847.2651 to discuss your tax situation. Or, connect with us here to schedule a Tax Situation Review.

For more insight, observations and guidance on the new Tax Cuts and Jobs Act, visit our Tax Reform webpage.

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Oklahoma has currently enacted a tax amnesty program for the period beginning September 1, 2017 and ending November 30, 2017. Taxpayers should take this opportunity to voluntarily file delinquent tax returns and avoid potentially high penalties, interest, and other possible collection fees.

What Oklahoma Taxes are Eligible for Tax Amnesty?

There are a wide variety of taxes eligible for Oklahoma’s amnesty program, including:

• Mixed beverage tax
• Gasoline and diesel tax
• Gross production and petroleum excise tax
• Sales tax
• Use tax
• Income tax for periods ending prior to January 1, 2016
• Withholding tax

Who is Eligible (and not Eligible) for the 2017 Oklahoma Voluntary Disclosure Initiative?

Individuals, businesses, and other entities with Oklahoma tax delinquencies are generally eligible to participate in the program.

The following taxpayers do not qualify for the program:

• Taxpayers with delinquent taxes other than those listed in the section above.
• Taxpayers that have already been contacted by the Oklahoma Tax Commission regarding potential delinquency.
• Taxpayers that have collected sales and use tax or payroll taxes from others, but have not remitted them to the state.
• Taxpayers that have participated in a voluntary disclosure program for that tax in the past three years.

What Are the Benefits of Voluntary Disclosure?

For taxpayers that take advantage of the limited window of opportunity for voluntary disclosure, Oklahoma will waive all the penalties, interest, and other fees for any taxpayer who participates in the program. It’s important to note, however, that the period that additional taxes can be assessed is limited to three years for annual returns and thirty-six months for all other filings.

For taxpayers that have collected taxes from others but not reported the taxes, a modified voluntary disclosure agreement is available where penalties are waived. Interest may still be charged and the time period includes all periods in which taxes were collected and not remitted to the state.

How to Participate in the 2017 Oklahoma Voluntary Disclosure Initiative

To participate, taxpayers must file all delinquent tax returns and make the required payments (or enter into an accepted payment program) within the disclosure period. Taxpayers should also be aware that for one year following the initiative period, they must continue to pay and remit applicable taxes, otherwise the penalties, interest, and other fees will not be waived.  

Get Assistance for Voluntary Compliance

If you are a delinquent Oklahoma taxpayer, you should consider getting assistance from experienced tax professionals that can help you navigate through the program, and ensure that you are in full compliance with program requirements.

We can help.

Freed Maxick’s State and Local Tax (SALT) team is among the nation’s leaders when it comes to assisting taxpayers with voluntary disclosure and compliance.

Contact a member of the Freed Maxick SALT Team here for a no cost consultation.

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