Taxes

Sales Tax Ruling Benefits E-Tailers

June 30, 2018 By Twila VanLeer

Sales Tax Online Shopping — The losses in sales tax revenues from the online sales have cost states as much as $33 billion each year

The recent U.S. Supreme Court decision that will allow states to have online retailers collect sales taxes, just as local retailers do, will go a long way toward leveling the advantage the online businesses have historically had.

The court’s landmark 5-4 vote on the issue will take away the special break the e-tailers have enjoyed and overturns a 1992 decision that they were exempt from collecting sales taxes.

The Supreme Court ruling specifically addressed a South Dakota situation. That state filed a 2016 lawsuit against online retailers Wayfair, Overstock.com and Newegg over the issue of state tax collection. The high court decision means that online merchants can no longer claim an exemption from collecting sales taxes based on the fact that they have no presence in the states where they sell their wares.

Justice Anthony Kennedy, representing the majority of the justices, said that vast marketing changes no longer justify the practice. It has given the e-commerce marketers an “arbitrary advantage over their competitors who routinely collect state sales taxes,” he said.

The losses in sales tax revenues from the online sales have cost states as much as $33 billion each year, Kennedy noted. In 1992, only 2 percent of Americans had internet access. That figure today is about 89 percent and the percentage of online sales rises regularly. Today, some 9 percent of all retail sales are made on the net, and the rate is growing at four times the rate of the increases in the brick-and-mortar outlets.

Retailers in general applauded the Supreme Court action, realizing that it levels the playing field among merchants online and off. “The Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well,” said Matthew Shay, president and CEO of the National Retail Federation.

Retailers are urging Congress to step up to the plate and craft additional legislation that will permanently resolve the inequities caused by the sales tax issue. The complexities grow as large e-tailers such as Amazon acquire smaller businesses and the mix between big-box stores and small outlets and the erosion of boundaries between in-state and out-of-state sales increases.

Tax Deductions Americans Use

April 9, 2018 By Twila VanLeer

Thousands of Americans are deep in the throes of the annual tax report and looking for any deductions they can claim to lessen the ultimate load. The three most frequently used deductions include:

• Taxes paid to state and local governments. You can write off real estate taxes that go to support local and state government. You can either deduct the local and state taxes or sales taxes, but not both. In the most recent figures the IRS has released, 44.2 million Americans took the state and local tax deduction, with an average of $12,514 per return. Things have changed for those filing returns for 2017. Under new federal guidelines, there is a limit of $10,000 for state and local taxes.

• Mortgage and investment interest. In the past, filers could claim interest for personal debt, but that is not an option any more. The exception is mortgage debt and you also can take an itemized deduction for interest related to investments. Tax reform also has reduced the amount of mortgage interest allowable from $1 million down to $750,000. Mortgage interest represents some 95 percent of the deductions claimed by taxpayers. That includes standard interest, mortgage points and mortgage insurance premiums. Home equity loan interest no longer fits into the deductibles list.

• Gifts to charity. This popular tax break underwent a lot of debate during the restructuring of the national tax laws. But the amount of charitable gifts ($222 billion, usually in cash or checks) and the popularity of the deduction saved it. On average, the typical taxpayer deducted more than 6,000 in charitable gifts in the form of cash/checks or donated vehicles, clothing or stock, for the last year that the IRS reported.

What Updated Child Tax Credits Mean

January 3, 2018 By Twila VanLeer

In American families, down there where the rubber hits the road, there is a lot of concern about what Congressional tinkering with child tax credits will do in the long run. It won’t be apparent until the new laws actually kick in, but what seems on the surface to be breaks for people in the low- to moderate-income brackets could prove to be of little help to millions of families.

The tax revision bill as it passed recently, allows families in low-income brackets to claim more in per-child credits. The credit was $1,000 per child and now it is $2,000. If the household tax liability is below zero, the credit is refundable as a tax return.

Sounds good, but tax experts say the expanded tax credit may actually provide little relief for poor families. It’s complex.

Until now, families could claim the credit for each child under 17 whom they housed and provided for for six months in the relevant year. The credit began to phase out when gross income reached $75,000 for a single parent or $110,000 for couples. The proportion of families that received the credit and the average amount of the credit is now higher among moderate- and middle-income households than in low-income households, according to the Tax Policy Center. Even so, the credit helped some 2.7 million taxpayers in 2016.

So now the credit has been raised to $2,000 per child and the income thresholds have been raised to $200,000 for single taxpayers and $400,000 for couples. For families who earn too little to owe taxes, the bill allows a refund of up to $1,400. These provisions are due to expire in 2026. The bill also requires that parents seeking the child credit to provide a Social Security number for the child, a move calculated to deny the credit to illegal aliens. It is estimated that some 1 million children would be harmed by that provision.

On the surface all of this is good news for American families, but the provisions will provide little help for lower-income families, some tax experts say. Because of how the rules are written, some 10 million children are likely to receive only a token increase — up to $75 per family, they say. That’s because the refundable portion of the credit doesn’t become effective until the family has income of $2,500. For each additional dollar earned the family receives a refundable credit worth 15 cents until it reaches the maximum credit of $1,400. Many families are likely never to come close to the necessary income level.

The increased child credits also will be offset by the new tax bill’s elimination of personal exemptions. Until now, taxpayers could deduct from their income a $4,050 exemption for himself or herself and for each dependent. No longer will that benefit be available.