A Quick Glance at California Sales Tax

A Quick Glance at California Sales Tax

by | Nov 9, 2022 | Business Tax, Individual Tax

Taxes seem to be everywhere and with every thing in California. Sales tax is a type of transaction tax we often encounter in the sale of assorted goods. Sales tax rules in California operate similarly to other states, but here are some notable pieces to remember in the golden state, whether as a retailer or a customer in California.

Tangible Personal Property

For the most part, unless there is a specific exemption, sales tax applies to the sale of all tangible personal property. Tangible personal property can be basically thought of as all physical personal property that aren’t considered real estate, so it’s a broad category of things like furniture, cars, computers, tools, and food.

Exemptions to Sales Tax

In California, there are certain groups of tangible personal property that are exempt from sales tax. Common examples include groceries, prescription medication, and labor, such as fixing a car. Of course, as you delve further into these categories and sales tax law in California, you start to discover the technicalities that CAN make a sale taxable. Examples include hot prepared food for sale to-go (but not cold food to-go), over-the-counter medicine, and fabrication labor. To illustrate, here’s an example:

Bob goes to his local convenience store. They sell cold, ready-to-heat burritos and have a microwave on the premises for customers to use after purchasing. Selling the burrito is non-taxable since it is purchased as a cold food item. Bob can decide if he wants to warm it up there or not. However, if for whatever reason, the employee decides to heat up the burrito, then sell it to Bob, the burrito technically becomes taxable because it’s now considered hot prepared food (by the employee) sold to a customer.

Sales Tax Rates in California

Statewide, the current California sales tax rate sits at 7.25%. Counties and cities often apply voter-approved measures that add to the base state rate, thereby increasing their area’s total sales tax rate. In some parts of the state, the sales tax rate can noticeably fluctuate. For example, the rate in the city of Long Beach is currently at 10.25%. Drive northeast a few miles into the city of Buena Park and the tax rate dips down to 7.75%. While that extra 2.5% in Long Beach may not be very significant on buying food from your favorite restaurant, it can become more noticeable if you buy big-ticket items like furniture or vehicles.

 

Tax rates and tax laws seem to operate in constant flux. Business owners may often have a hard time keeping up to date. Having a team to support and guide owners on questions of tax and accounting helps owners focus on their business goals and ambitions. MiklosCPA is a California-based accounting firm that helps small and emerging businesses with their accounting and tax needs. If you wish to know more of our services, contact us. Also, follow our social media accounts for future good-to-know blog posts like this one!

Make Your Voice Heard – The IRS Taxpayer Advocate Service

Make Your Voice Heard – The IRS Taxpayer Advocate Service

by | Apr 27, 2022 | Business Tax, Expat Tax, Individual Tax

Working with the IRS on a complicated tax issue may not be the easiest thing in the world. Fortunately, some help within the organization is available to the public. The IRS Taxpayer Advocate Service (TAS) is an independent organization within the IRS that works as the “voice of the taxpayer” in the IRS. Generally, they ensure taxpayers are treated fairly and that all of their rights are understood when dealing with the IRS. Additionally, TAS recommends larger process changes to the IRS and Congress to help the IRS better serve taxpayers and improve efficiency.

Taxpayer Bill of Rights

The Taxpayer Bill of Rights sets the bar in how the IRS and its employees must work with taxpayers. Not technically new, the Taxpayer Bill of Rights as it currently stands is codified from a mix of the Internal Revenue Code, IRS administrative policies, and other laws & regulations. They are:

  • The right to be informed
  • The right to quality service
  • The right to pay no more than the correct amount of tax
  • The right to challenge the IRS’s position and be heard
  • The right to appeal to an IRS decision in an independent forum
  • The right to finality
  • The right to privacy
  • The right to confidentiality
  • The right to retain representation
  • The right to a fair and just tax system

Check out our article that goes into more depth about these rights.

TAS At Your Service

Individual taxpayers experiencing issues with the IRS or feel they have been treated unfairly are able to reach out the Taxpayer Advocate Service for help. A taxpayer advocate will work with the taxpayer to resolve their issues with the IRS. Additionally, TAS provides various resources on their website to help taxpayers understand their rights and how TAS can assist them.

Quality service to taxpayers/clients is a priority all tax and accounting professionals strive towards. Spotlighting available services such as TAS for those who may need assistance is something we at MiklosCPA believe is part of our goal to demonstrate that #AccountingIsAwesome for our clients and readers. We help our clients meet their accounting and tax needs so that they can achieve their business dreams and ambitions. Want to learn how our services can help your business? Let’s chat. Also, please check out our social media pages for additional tax tidbits and other useful good-to-know pieces.

In for the Long Haul – The Retirement Plan Startup Cost Tax Credit

In for the Long Haul – The Retirement Plan Startup Cost Tax Credit

by | Dec 28, 2021 | Business Tax

Starting a small business comes with many advantages to get off the ground, including access to certain deductions and tax credits that may not be available to larger businesses or organizations. The Retirement Plan Startup Cost Tax Credit allows qualified small businesses to claim up to $5,000, for 3 years, of the ordinary & necessary costs of starting SEP, SIMPLE IRAs, or other qualified retirement plans for their employees.

Qualified Employers

In order to qualify as an employer, your business must meet the following criteria:

  • Retain 100 or fewer employees that have received at least $5,000 in compensation from the preceding year.
  • Had at least one plan participant who was a non-highly compensated employee (NHCE).
  • In the 3 years prior to eligibility, the employees weren’t substantially the same employees who received contributions or accrued benefits in another plan sponsored by the employer or a member of a controlled group that includes the employer.

Taking Credit

The Retirement Plan Startup Cost Tax credit is claimed by completing Form 8881 and submitting with the business tax return. The credit is worth 50% of your eligible startup costs up to the greater of:

  • $500 OR
  • The lesser of
    • $250 multiplied by each non-highly compensated employee eligible to participate in the plan OR
    • $5,000

The credit can be claimed for all ordinary & necessary costs to set up and administer the plan and to educate your employees about the plan. The first 3 years the plan goes into effect are eligible for the credit and your business may choose to start claiming the credit in a tax year prior to when the plan becomes effective. However, you cannot deduct startup costs and claim the credit for the same expenses.

Setting up a retirement savings plan for employees can help budding businesses retain their employees over the long haul. Small business owners already have enough on their plate in getting their new business started! Having an additional help with the tax and accounting concerns takes some of those stresses of the plates of owners. MiklosCPA has helped many small and emerging businesses with their tax and accounting needs and helping their owners meet their business dreams and goals. Interested in knowing how we can help your business? Give us a call. In the meantime, let’s stay in touch and follow our social media accounts for more “good to know” articles and tax tidbits.

Rules for Rentals – Splitting Property Residential & Rental Use

Rules for Rentals – Splitting Property Residential & Rental Use

by | Oct 29, 2021 | Business Tax, Individual Tax

Homeowners who make their property available for rental can make some extra income in addition to being able to deduct certain expenses. However, owners should be careful to know that not meeting certain requirements of personal use may require owners to treat their residential property as a rental property for tax purposes.

There’s no place like Dwelling Unit

Tax parlance often refers to homes, apartments, condos, and similar residences as “dwelling units.” Your personal dwelling unit is considered your residence if you use it for personal purposes during the year for more than the greater of:

  • 14 days OR
  • 10% of the total days rented out to others for a fair rental price.

Personal purposes includes personal use by the owner or others (such as relatives) who own interest in the property. Fair rental price means generally the amount of rent a person not related to the taxpayer would be willing to pay for renting similar property in the area. It should be noted that days spent maintaining or repairing the property does not count towards the personal purposes portion of the test. Not meeting the criteria above means the property is considered a rental property and personal property deductions become unavailable.

 

Allot a lot of time

If your personal residence is used for both rental and personal purposes and meets the above criteria, you must divide your expenses between the allotted rental and personal use days. Rental expense deductions are limited to the gross rental income. Excess rental expenses may be carried forward to the following year. Additionally, some personal expenses related to the property may be deducted on your Schedule A form, such as mortgage interest and property tax expenses.

A special rule exists that if you rent out your personal residence for less than 15 days during the year, you do not need to report the rental income and do not deduct any related rental expenses.

 

Making your personal property available for rental can be a nice additional stream of income. However, the rules surrounding rental income and properties can quickly get complicated. Owners may face complex issues that require a pair of professional eyes to analyze. Well, “look” no further than us here at MiklosCPA. We are a California-based CPA firm that helps clients, often owners of small businesses in various industries. Give us a call to learn about how we can help you and your business! Also, don’t forget to check out our social media pages for assorted “good-to-know” tax tidbits!

Semi-Independent Working Life – Statutory Employees

Semi-Independent Working Life – Statutory Employees

by | Sep 23, 2021 | Business Tax, Individual Tax

Many businesses owners are familiar with independent contractors and employees carrying out the work needed for their business. Whether if it’s one-time projects or steady, consistent operations, businesses rely on both kinds of workers to get the job done. An interesting and uncommon category of employees who walk the line between the standard employee and independent contractor is the statutory employee. Employees by “statute”, employers do not have to withhold federal income tax on these employees. The statutory employee may also have access to additional tax deduction benefits individually. However, the worker must meet finely-specified criteria to be considered statutory employees.

Statutory Employee Categories

Laid out in Publication 15-A,  statutory employee status applies if it falls within 4 distinct categories and also meets the 3 conditions in regards to social security & Medicare taxes.

The 4 categories of employees that may be considered statutory employees are:

  • Drivers who distribute beverages or grocery products, or drivers who pick up and deliver laundry, if the driver is an agent paid on commission.
  • Full time life insurance sales agents whose principal business activity is selling life insurance or annuity contracts or both, primarily for one company.
  • Individuals who works at home on materials or goods supplied by an employer and must be returned or to a designated person, if furnishing specifications for the work to be done
  • Full-time traveling salesperson who works on an employer’s behalf and orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, and similar establishments. Goods must be sold for resale or supplies for the buyer’s business operations and must be the salesperson’s principal business activity.

Payroll Tax Considerations

FICA taxes, aka SS & medicare taxes, must be withheld if all 3 conditions apply for the aforementioned categories of statutory employees:

  • Service contract states or implies that substantially all services are to be performed personally by the statutory employee
  • The employee does not have a substantial investment in the equipment and property used to perform the services (other than an investment in facilities for transportation like a car or truck)
  • Services are performed on a continuing basis for the employer

FUTA taxes also apply to the business if the employee is considered as a statutory employee. However, it is worth noting federal income tax is not withheld for statutory employees, so businesses may find some advantage in not having to withhold for income tax from statutory employees. Statutory employees receive a W-2 form and are noted as “statutory employee” in check box 13. Additionally the statutory has access to using Schedule C and its wider array of deductions, as opposed to schedule A like most individual tax filers as well as not being subject to the 2% AGI threshold of Schedule A.

 

Statutory employees are unique cases that can come up in running a business. Having a knowledgeable team to understand and address these situations help free up owners to their main goal, growing their business! MiklosCPA strives to be that team and has helped many small and emerging businesses with their accounting and tax needs. Schedule a call with us to learn how we may help your business. Also, check us out on our social media pages for additional tax tidbits and interesting info.

 

Looking out for #1 – Self-Employment Taxes & the Deduction

Looking out for #1 – Self-Employment Taxes & the Deduction

by | Aug 13, 2021 | Business Tax, Individual Tax

Being a self-employed individual has unlimited earning potential and flexible schedules, but of course comes with some extra responsibilities. For our purposes, we’re referring to what’s understood as “self-employment taxes.” In tax speak, that refers to the Social Security and Medicare payroll taxes that would normally be withheld by an employer for their employees.

Self-Employment Earnings

As a self-employed worker, the individual now becomes responsible for both the “employer” and “employee” portions of the tax, currently at a rate of 15.3 % (12.4% for Social Security and 2.9% for Medicare, 2020) on combined earnings. The first $137,700 (2020) of earnings is subject to the Social Security portion of the tax, while the remaining 2.9% Medicare portion is not subject to a limit.

Self-Employment Deduction

You may have heard of a “Self-Employment Tax Deduction” that allows self-employed individuals use for their taxes. To clarify, this is a business deduction available to self-employed individuals that allow them to deduct the employer portion of their “employment tax” towards their federal income tax. In simpler terms, you’re using a portion of what would be your payroll taxes as a business deduction towards your income tax. Check out our article on the different tax types for more info.

File & Pay

Self-Employment taxes are reported on Schedule SE for the Form 1040. The self-employment tax deduction is reported on line 13 of Schedule SE and on Schedule 1, line 14 of the Form 1040. The deduction goes towards your adjusted gross income and can ultimately help lower your income tax.

 

Self-employment taxes are just an additional responsibility for the independent worker. However, individual business owners often have a full plate running their business and tax concerns may be on the backburner. Having some backup to handle those issues can free business owners to focus on their main goal, growing the business! Count on us here at MiklosCPA, a CPA firm focused on helping small and emerging business clients with their tax and accounting needs through the latest in “virtual office” operations. Give us a call to learn how we can help your business succeed, and don’t forget to subscribe to our social media pages.

Skip to content