What is Bonus Depreciation and Section 179 Depreciation?

As a business owner, you are likely familiar with the concept of depreciation. Depreciation is a tax-deductible expense that allows businesses to spread out the cost of purchasing and owning an asset over its useful life. This helps businesses save money on their taxes and manage cash flow. To further assist businesses in recouping the costs of large capital purchases, the IRS has introduced two powerful depreciation methods: bonus depreciation and Section 179 depreciation.

Bonus depreciation is a tax incentive that allows businesses to deduct a larger portion of the cost of qualifying assets in the year of purchase. It was introduced in the Tax Cuts and Jobs Act of 2017 and is set to expire in 2026. The current bonus depreciation rate is 100%, meaning a business can deduct the full cost of eligible assets in the year of purchase.

Section 179 depreciation is another powerful tax incentive that allows businesses to deduct the cost of certain property and equipment purchases in the year of purchase. The current Section 179 deduction limit is $1 million, with a phase-out threshold of $2.5 million. This means that businesses can deduct up to $1 million of qualifying assets in one year.

Bonus depreciation and Section 179 depreciation are great ways for businesses to save money on taxes and manage cash flow. They can be used in tandem to maximize the tax benefits of large capital purchases. However, it’s important to note that each has its own set of rules and requirements. Be sure to speak with a tax professional to determine which depreciation method is best for your business.

Disclaimer: The information provided above is not meant to
be legal or tax advise. You should consult your CPA and attorney to
determine the best course of action for your situation.

Mitzi E. Sullivan, CPA is a cloud based professional services provider
specializing in cloud accounting.

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Advantages of Outsourced Accounting: Why It’s a Smart Business Move

For many business owners, managing accounting tasks can be a significant source of stress. Whether it’s managing payroll, bookkeeping, or tax filings, there are many tasks that can be time-consuming and require specialized knowledge. One solution to this problem is to outsource accounting tasks to a third-party provider. In this blog post, we’ll discuss the advantages of outsourced accounting and why it’s a smart business move.

Expertise

Outsourced accounting firms have a team of professionals with a wealth of experience in accounting and finance. They are up-to-date with the latest tax laws and regulations, ensuring that your business is compliant with all legal requirements. This can be especially helpful if you don’t have an in-house accountant or if your current accountant doesn’t specialize in a particular area.

Cost Savings

Outsourcing accounting tasks can be a cost-effective solution for many businesses. Instead of hiring a full-time accountant or accounting team, you can pay for services as you need them. This can result in significant cost savings, especially for small businesses that may not have the budget to hire a full-time accountant.

Increased Efficiency

By outsourcing accounting tasks, you can free up time and resources to focus on other important areas of your business. This can lead to increased efficiency and productivity, as you’ll have more time to devote to core business activities. Additionally, outsourcing firms typically use advanced technology and software, which can further streamline the accounting process.

Scalability

Outsourced accounting services can be scaled up or down as your business needs change. For example, if you experience a sudden increase in accounting tasks during tax season, you can increase the level of service you receive from the outsourcing firm. This flexibility can be invaluable for businesses that are growing or experiencing fluctuations in demand.

Peace of Mind

Outsourcing accounting tasks can provide peace of mind, knowing that your financial records are in the hands of professionals. This can be especially important if you’re not familiar with accounting or don’t have the time or resources to manage it effectively.

Outsourced accounting services can provide a wide range of benefits for businesses, from increased efficiency to cost savings and peace of mind. If you’re considering outsourcing your accounting tasks, be sure to research your options and choose a reputable provider that can meet your specific needs.

Disclaimer: The information provided above is not meant to be legal or tax advise. You should consult your CPA and attorney to determine the best course of action for your situation.

Mitzi E. Sullivan CPA, PLLC is a cloud based professional services provider specializing in cloud accounting.

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Best Entity Selection for Operating in Texas

The Tax Cuts and Jobs Act (TCJA) has added a new twist to selecting the best type of entity for doing business in Texas. The federal corporate tax rate was lowered from a maximum 35% to a flat 21%; while at the same time a new 20% deduction was allowed for individuals with Qualified Business Income (QBI). It’s a great time for many closely held businesses to revisit their entity selections.

Selecting the best entity for your business has important tax and legal ramifications. Below are some points to discuss with your CPA and attorney. Call us at (940) 539-3238 to learn more.

In general

Sole proprietorships are best suited for single owner entities that do not need liability protection, are not concerned with mitigating self-employment taxes and do not need to raise or accumulate capital. Sole proprietorships have relatively few administrative requirements and are simple and inexpensive to form. Personal assets may be seized to satisfy business obligations or debts.

Partnerships are best suited for multiple owner entities that do not need liability protection, are not concerned with mitigating self-employment taxes and do not need to raise or accumulate capital. Partnerships have relatively few administrative requirements and are simple and inexpensive to form. Partners may not be employees of the partnership. Personal assets may be seized to satisfy business obligations or debts, and partners are joint and severally liable.

Limited partnerships are best suited for multiple owner entities that do not need liability protection for general partners, are not concerned with mitigating self-employment taxes and do not need to raise or accumulate capital. Partners may not be employees of the partnership. Limited partnerships have relatively few administrative requirements. Assets of general partners may be seized to satisfy business obligations or debts, and general partners are joint and severally liable. Limited partners can not be active participants in the day-to-day operations of the business. An LLC may be created to serve as the general partner. Owners may not claim tax losses in excess of their investments.

The LLC is best suited for entities that need liability protection, are not concerned with mitigating self-employment taxes and do not need to raise or accumulate capital. The LLC has relatively few administrative requirements. Income is passed through to the members, unless the LLC elects to be taxed as a c-corporation. All members may participate in the day-to-day operations of the business and, typically, assets of members may not be seized to satisfy business obligations or debts. Ownership interests are typically not freely transferable and, in Texas, are not considered attachable property. Owners may claim tax losses in excess of their investments, such as on certain leveraged real estate investments.

The S corporation is best suited for entities that need liability protection, are concerned with mitigating self-employment taxes and do not need to raise or accumulate capital. Entities taxed as an s corp may be able to reduce self-employment taxes by paying owner-employees both salaries and distributions. Ownership interests are freely transferable and, in Texas, are considered attachable property.

C corporations are best suited for entities that desire to go public, raise capital or accumulate capital for expansion or to service debt. Ownership interests are freely transferable and, in Texas, are considered attachable property.

The information provided above is not meant to be legal or tax advise. You should consult your CPA and attorney to determine the best structure for your entity.

See also: New Tax Law. What’s Hot. What’s Not.

~Mitzi E. Sullivan, CPA

M.E. Sullivan is a cloud based professional services provider specializing in cloud accounting.

Additional information is provided by the Texas Secretary of State and copied below:

• Sole proprietorship: The most common and the simplest form of business is the sole proprietorship. In a sole proprietorship, a single individual engages in a business activity without necessity of formal organization. If the business is conducted under an assumed name (a name other than the surname of the individual), then an assumed name certificate (commonly referred to as a DBA) should be filed with the office of the county clerk in the county where a business premise is maintained. If no business premise is maintained, then an assumed name certificate should be filed in all counties where business is conducted under the assumed name.
• General partnership: A general partnership is created when two or more persons associate to carry on a business for profit. A partnership generally operates in accordance with a partnership agreement, but there is no requirement that the agreement be in writing and no state-filing requirement. If the business of the partnership is conducted under an assumed name (a name that does not include the surname of all of the partners), then an assumed name certificate (commonly referred to as a DBA) should be filed with the office of the county clerk in the county where a business premise is maintained. If no business premise is maintained, then an assumed name certificate should be filed in all counties where business is conducted under the assumed name.
• Corporation: A Texas corporation is created by filing a certificate of formation with the Texas Secretary of State. The Secretary of State provides a form that meets minimum state law requirements. Online filing of a certificate of formation is provided through SOSDirect.A corporation is a legal person with the characteristics of limited liability, centralization of management, perpetual duration, and ease of transferability of ownership interests. The owners of a corporation are called “shareholders.” The persons who manage the business and affairs of a corporation are called “directors.” However, state corporate law does provide for shareholders to enter into shareholders’ agreements to eliminate the directors and provide for shareholder management. Choosing the best management structure for your corporation is a decision you make with the advice of an attorney. The Secretary of State cannot assist you.

  An “S” corporation is not a matter of state corporate law but rather a federal tax election. A for-profit corporation elects to be taxed as an “S” corporation by filing an election with the Internal Revenue Service. Please contact the IRS or competent tax counsel regarding the decision to be taxed as an “S” corporation and the requirements for filing the election. This is not a matter with which the Secretary of State may assist.

• Limited Liability Company: A Texas limited liability company is created by filing a certificate of formation with the Texas Secretary of State. The Secretary of State provides a form that meets minimum state law requirements. Online filing of a certificate of formation is provided through SOSDirect.The limited liability company (LLC) is not a partnership or a corporation but rather is a distinct type of entity that has the powers of both a corporation and a partnership. Depending on how the LLC is structured, it may be likened to a general partnership with limited liability, or to a limited partnership where all the owners are free to participate in management and all have limited liability, or to an “S” corporation without the ownership and tax restrictions imposed by the Internal Revenue Code. Unlike the partnership, where the key element is the individual, the essence of the limited liability company is the entity, requiring for its creation more formal requirements. 1 William D. Bagley & Phillip P. Whynott, The Limited Liability Company, §2.10, (2d ed. 2d rev. James Publishing, 1995).

  The owners of an LLC are called “members.” A member can be an individual, partnership, corporation, trust, and any other legal or commercial entity. Generally, the liability of the members is limited to their investment and they may enjoy the pass-through tax treatment afforded to partners in a partnership. As a result of federal tax classification rules, an LLC can achieve both structural flexibility and favorable tax treatment. Nevertheless, persons contemplating forming an LLC are well advised to consult competent legal counsel.

  A limited liability company can be managed by managers or by its members. The management structure must be stated in the certificate of formation. Management structure is a determination that is made by the LLC and its members. The Secretary of State cannot give advice about management structure.

• Limited Partnership: A Texas limited partnership is a partnership formed by two or more persons and having one or more general partners and one or more limited partners. The limited partnership operates in accordance with a partnership agreement, written or oral, of the partners as to the affairs of the limited partnership and the conduct of its business. While the partnership agreement is not filed for public record, the limited partnership must file a certificate of formation with the Texas Secretary of State. The Secretary of State provides a form that meets minimum state law requirements. Online filing of the certificate of formation is provided through SOSDirect.
• Limited Liability Partnership: In order to limit the liability of its general partners, a general or limited partnership may opt to register as a limited liability partnership. The Secretary of State provides a form for registration as a limited liability partnership. Online filing of the registration is provided through SOSDirect.

W-2 | Filing Support

It’s that time, April is coming up fast and many people start stressing. Let’s go back to the basics to better understand W-2’s so you don’t have to worry about the word, Deadline.

What is a W2?s

A W-2 is a tax form used in the United States to report an employee’s annual wages and the taxes withheld from those wages. Employers are required to provide their employees with a W-2 form by January 31st each year. The W-2 form includes information such as the employee’s total wages earned during the year, the amount of federal, state, and local income taxes withheld from their paycheck, and the amounts of Social Security and Medicare taxes withheld. Employees use this information to file their federal and state income tax returns.

What if I still don’t have my W-2?

If you do not receive your W-2 form by January 31st, you should first contact your employer to inquire about the status of your W-2. It’s possible that your employer may have sent it to the wrong address or there may be some other delay.

If you still do not receive your W-2 form by mid-February, you should contact the IRS for assistance. You can call the IRS at 1-800-829-1040 and they will contact your employer on your behalf to request a copy of your W-2.

Filing and Extension| Form 4868

Form 4868, also known as the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, is a tax form used by taxpayers in the United States to request an automatic extension of time to file their federal income tax return.

If you are unable to file your tax return by the April 15th deadline, you can use Form 4868 to request an automatic extension until October 15th. However, it’s important to note that Form 4868 only extends the time to file your tax return, not the time to pay any taxes owed. You must still estimate and pay any taxes owed by the April 15th deadline to avoid penalties and interest charges.

Disclaimer: The information provided above is not meant to
be legal or tax advise. You should consult your CPA and attorney to
determine the best course of action for your situation.

Mitzi E. Sullivan, CPA is a cloud based professional services provider
specializing in cloud accounting.

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For the Employee – W-4 Forms Explained and Tips on Filling Them Out

Form W-4 – Explained

Form W-4, formally known as “Employee’s Withholding Certificate,” is a form created by the IRS that informs employers how much tax to withhold from each of their employee’s paycheck. This form is used to calculate payroll tax withholdings in order to remit these taxes to the IRS and state (if applicable), on the employee’s behalf.

 

Step 1: Fill out your personal Information

 

Fill out your legal name, address, Social Security number and tax-filing status.

 

Step 2: Accounting for multiple jobs

 

If you or your wife (if you file jointly) is working more than one job or have self-employed income, see below to get accurate withholding:

• The W-4 for the higher paying job, fill out steps 2 to 4(b) of the form and leave those steps blank for the other jobs.
• If you are your spouse both earn the same amount and are married filing jointly, you can check the box associated with Step 2(c) “If there are only two jobs total…”. Please note, however, that both spouses need to fill out their W-4s if you check this box.
• If you are filling out your W-4 and don’t want your employer to know that you have a second job or other income, there are a few options, including:
• On line 4(c), you can instruct your employer to withhold an extra amount of tax from your paycheck; or
• Don’t factor your extra income into your W-4, but instead, send in estimated tax payments to the IRS yourself.

Step 3: Claiming dependents, including children

 

If you have kids and dependents and your total income is under $200,000 ($400,000 married filing jointly), you can enter the number of dependents (including children) and multiply them by the credit amount for the corresponding year. See this overview for the IRS Rules for Claiming a Dependent.

 

Step 4: Personalizing your withholdings

 

If you want to either withhold extra tax because you would rather overpay and receive a refund or you expect to claim deductions other than the dependents in Step 3 and the standard deduction,

 

Step 5: Turn in your W-4

 

Sign and date your W-4 and turn it into your employer’s payroll or human resource team.

Disclaimer: The information provided above is not meant to be legal or tax advise. You should consult your CPA and attorney to determine the best course of action for your situation.

Mitzi E. Sullivan CPA, PLLC is a cloud based professional services provider specializing in cloud accounting.

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What Small Businesses Starters Should Be Aware of When Considering Debts, Leases and Rents

Starting a small business can be an exciting endeavor. However, it can also be overwhelming, particularly when it comes to finances. One of the biggest financial challenges that small businesses face is managing debt, leases, and rent payments. In this blog post, we will explore how small businesses can bury themselves before they even start working by not managing their debts, leases, and rent effectively.

Debts

Many small businesses rely on debt financing to get their businesses off the ground. However, taking on too much debt can be detrimental to the long-term success of the business. Small businesses should be cautious when taking on debt and ensure that they have a plan in place for paying it back. Failing to make payments on time can lead to high-interest rates, penalties, and damage to the business’s credit score.

Leases

Leasing space for a small business is often a more affordable option than purchasing property. However, leasing comes with its own set of challenges. Small business owners should carefully review the terms of the lease agreement before signing. They should pay attention to details such as rent increases, maintenance responsibilities, and early termination fees. Failing to understand the terms of the lease can result in unexpected expenses that can put a strain on the business’s finances.

Rent

Rent is one of the most significant expenses for small businesses, particularly for those in high-cost areas. Small business owners should consider their budget when choosing a location for their business. They should look for areas with lower rent costs or consider sharing space with other businesses. Paying too much for rent can put a significant strain on a business’s finances, making it difficult to cover other essential expenses such as inventory, equipment, and salaries.

Managing Debts, Leases, and Rent

Small businesses can avoid burying themselves in debt, leases, and rent by taking a proactive approach to financial management. They should have a clear understanding of their financial situation and create a budget to help them manage their expenses. It is essential to prioritize debt payments and make them on time to avoid incurring additional fees and penalties. Small business owners should also negotiate the terms of their lease agreements to ensure that they are fair and affordable. It is important to review the lease agreement regularly to ensure that the terms are being followed and that there are no unexpected expenses.

When it comes to renting, small business owners should be strategic in choosing a location and negotiating the rent. They should look for areas with lower rent costs or consider sharing space with other businesses. They should also negotiate the rent and ensure that it is fair and affordable.

In conclusion, small businesses can bury themselves in debt, leases, and rent if they do not manage their finances effectively. Small business owners should take a proactive approach to financial management, prioritize debt payments, negotiate lease agreements, and be strategic when choosing a location and negotiating rent. By managing their finances effectively, small businesses can increase their chances of long-term success.

Disclaimer: The information provided above is not meant to
be legal or tax advise. You should consult your CPA and attorney to
determine the best course of action for your situation.

Mitzi E. Sullivan, CPA is a cloud based professional services provider
specializing in cloud accounting.

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Pros and Cons of Using QuickBooks Online Payroll

QuickBooks Online (QBO) Payroll is a cloud-based payroll processing software designed for small businesses.

If you are just now starting to run payroll or are considering switching from another 3rd party payroll provider, here are some of the pros and cons of using QBO Payroll:

Pros

1. Easy to use: QBO Payroll has an intuitive and user-friendly interface that makes it easy for business owners and managers to process payroll.
2. Affordable: QBO Payroll offers affordable pricing plans that include all payroll and tax services.
3. Automated payroll processing: QBO Payroll automates many of the payroll processing tasks, such as calculating employee pay and taxes, generating pay stubs, and sending direct deposit payments.
4. Time-saving: QBO Payroll automates many payroll tasks such as calculating and filing taxes, issuing paychecks, and managing employee data, which saves time and reduces the chance of errors.
5. Tax compliance: QBO Payroll stays up-to-date with the latest tax laws and regulations, making it easier for businesses to stay compliant. In addition, you can utilize the auto payroll payments and filings feature so that QBO automatically makes all your payments and files all payroll forms on time.
6. Integrations: QBO Payroll integrates seamlessly with other QuickBooks products, as well as with a variety of other business software and tools.
7. Customer support: QBO Payroll offers customer support through phone, chat, and by appointment, which is available Monday through Friday, 6 a.m. to 6 p.m. Arguably, the most helpful feature they offer is the callback feature, you put in your information and typically get a call within 5-10 minutes so that you aren’t waiting on hold. This ensures that businesses can get help in a timely fashion.

CONS

1. Potential for errors: While QBO Payroll automates many payroll tasks, there is still the potential for errors, especially if data is entered incorrectly.
2. Internet access required: Since QBO Payroll is a cloud-based software, users need a reliable internet connection to use it effectively, which can be a drawback for businesses in areas with poor connectivity.

Depending on the nature and size of the client, a lot of times we advise our clients to get their company set up in QBO so that they can keep track of everything in an efficient and timely matter. The Online version of QuickBooks is especially helpful for collaboration with different parties. Get with your accountant in order to determine which QuickBooks subscription is suited best to your business needs.

Disclaimer: The information provided above is not meant to be legal or tax advise. You should consult your CPA and attorney to determine the best course of action for your situation.

Mitzi E. Sullivan CPA, PLLC is a cloud based professional services provider specializing in cloud accounting.

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How To Budget Under Uncertainty

• How to create a budget during time of uncertainty.

It’s no secret that the current economic and financial situation is far from stable. With so much uncertainty, it can be difficult to know how to budget and plan for the future. However, by following a few simple steps, you can create a budget that will help you manage your finances during this time of uncertainty.

The first step to budgeting under uncertainty is to create an emergency fund. Having an emergency fund will help you cover unexpected expenses and can help you avoid costly debt. Ideally, you should aim to have at least three to six months of living expenses saved in an accessible account.

The next step is to create a budget that will help you manage your finances in the short and long term. Start by creating a budget that includes all of your income sources, fixed and variable expenses, and any savings goals you may have. Make sure to include any additional expenses that may crop up due to the current economic situation, such as increased costs for health care, food, or housing. Once you have a budget in place, review it regularly to ensure you’re staying within your means and that it still meets your needs.

Finally, prioritize your spending to ensure you’re getting the most out of your money. Focus on the essential expenses first, such as food, housing, transportation, and health care, and then prioritize any discretionary expenses that are important to you. This will help you stay on top of your budget and make sure you’re not overspending.

By following these steps, you can create a budget that will help you manage your finances during this time of uncertainty. While the current economic situation may be challenging, having a budget in place can help you stay on track and ensure you’re making the most of your money. By setting up a budget and sticking to it, you can save more money and reduce your debt, ultimately leading to financial stability.

Disclaimer: The information provided above is not meant to be legal or tax advise. You should consult your CPA and attorney to determine the best course of action for your situation.

Mitzi E. Sullivan CPA, PLLC is a cloud based professional services provider specializing in cloud accounting.

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Pros and Cons of an S Corporation

What is an S Corporation?

An S Corporation is a type of business structure that combines the benefits of a corporation and a partnership. S Corporations have become popular among small business owners due to the tax and liability advantages they offer. In this blog, we will explore the pros and cons of forming an S Corporation.

An S Corporation is a type of business structure that combines the benefits of a corporation and a partnership. S Corporations have become popular among small business owners due to the tax and liability advantages they offer. In this blog, we will explore the pros and cons of forming an S Corporation.

Pros of an S Corporation:

1. Pass-Through Taxation: One of the biggest advantages of an S Corporation is its pass-through taxation. This means that the company’s income, deductions, and credits are passed through to the shareholders, who then report it on their individual tax returns. This avoids the double taxation that shareholders in C Corporations experience.
2. Limited Liability Protection: Like a corporation, an S Corporation provides limited liability protection to its shareholders, meaning their personal assets are protected in the event of a lawsuit or bankruptcy.
3. Saving SE Taxes: S Corporation tax structure allows an active shareholder to pay themselves a salary for the work they provide. The remainder of the net income from the S Corp allocated to the shareholder avoids self-employment taxes.
4. Cost-Effective: Forming an S Corporation is relatively cost-effective compared to forming a traditional corporation.

Cons of an S Corporation:

1. Complexity: Forming an S Corporation can be complex and time-consuming, requiring legal and tax compliance paperwork. Each year, an 1120S tax return is required to be filed to the IRS which is an additional accounting expense.
2. Restrictions on Shareholders: S Corporations have strict restrictions on shareholders, including a limit on the number of shareholders and the types of shareholders allowed.
3. Limited Deductible Losses: Shareholders of an S Corporation may only deduct losses to the extent of their basis in the company.

In conclusion, an S Corporation offers several benefits, including pass-through taxation, limited liability protection, and saving on self-employment taxes. However, it also has its drawbacks, such as complexity, restrictions on shareholders, and limited deductible losses. Before deciding to form an S Corporation, it’s important to carefully weigh the pros and cons and seek the advice of a tax professional.

Disclaimer: The information provided above is not meant to be legal or tax advise. You should consult your CPA and attorney to determine the best course of action for your situation.

Mitzi E. Sullivan, CPA is a cloud based professional services provider specializing in cloud accounting.

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The Inflation Reduction Act

In August 2022, congress added new tax provisions to the Inflation Reduction Act, that are designed to address health care, fight climate change, and reduce the country’s deficit. These new provisions may affect your personal finances; here is a brief explanation of some of those added provisions:

 

Negotiation of prescription drug prices for Medicare Beneficiaries

The cost for prescription drugs will decrease at the beginning of 2023 due to the tax provision allowing Medicare beneficiaries to negotiate the price of their prescription drugs. It will also include a cap of $2,000 per year in prescription drug costs for beneficiaries each year at the pharmacy and will allow free vaccinations for seniors beginning in 2023.

 

A 15% corporate minimum tax

This provision applies for all large corporations exceeding $1 billion in profits, with some exceptions to private equity firms. The provision will require a new minimum of 15% tax and will apply based on the annual income in the corporation’s financial statement rather than their taxable income. This provision was added due to large corporations paying little to no tax in the previous years.

 

Expansion of IRS agents

The IRS received $80 billion in funding and is expected to hire 87,000 new IRS agents to increase tax collections and tax compliance through more audits.   

 

Clean Energy Credit

This credit incentivizes taxpayers to install solar energy equipment to earn a non-refundable credit equal to 30% of eligible expenses. These expenses include solar panels, heat pumps, inspection and permit costs, batteries, contract labor for on-site preparation and installation, and sales tax. This credit will run until the end of 2032.

 

Electric Vehicle Tax Credit

Taxpayers who purchased a new electric vehicle before January 1, 2023, may be eligible for a tax credit of up to $7,500 and $4,500 for used electric vehicles. The amount of the credit will vary based on the manufacturing location of the vehicle when the car was purchased and placed in service, battery capacity to power, the vehicle, and other factors.

 

The Inflation Reduction Act is designed to grow the economy and reduce the deficit by billions and is projected to fall by more than $1.5 trillion during the year.

 

Disclaimer: The information provided above is not meant to be legal or tax advise. You should consult your CPA and attorney to determine the best course of action for your situation.

Mitzi E. Sullivan, CPA is a cloud based professional services provider specializing in cloud accounting.

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Economic Nexus

In 2018, the Supreme Court overruled the previous ruling that states can only require sellers to collect tax when they have a physical presence in the state. Now, states can require tax collection responsibilities on sellers who have an economic presence without a physical presence.

Many online retailers sell products all over the United States. Out of state sales without a physical presence can still trigger tax obligations in other states. Most states have economic nexus which is a threshold set by the state requiring the out of state seller to collect and remit sales tax. Economic nexus is triggered by reaching a certain amount of sales and/or number of sales transactions in another state.

If you reach any of the nexus thresholds, you must collect and remit sales tax in those states. If you do not reach the nexus threshold, you will collect and remit sales tax in the state your business is located in.

Disclaimer: The information provided above is not meant to be legal or tax advise. You should consult your CPA and attorney to determine the best course of action for your situation.

Mitzi E. Sullivan, CPA is a cloud based professional services provider specializing in cloud accounting.

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