Newsletter Volume 8, Number 6. June, 2008

Electronic Filing Requirements for Tax-Exempt Organizations

Small tax-exempt organizations must adhere to new annual electronic filing requirements. The first deadline was May 15th this year. Please contact us if you would help with your filing. Beginning this year, most organizations whose gross receipts are normally $25,000 or less must file Form 990-N, also known as the e-Postcard. Previously these small organizations did not have an annual filing requirement.

The first e-Postcards were due by May 15, 2008, from small tax-exempt organizations whose tax year ended on December 31, 2007. For organizations with a tax year that ends after December 31, 2007, the e-Postcard is due by the 15th day of the 5th month after the close of their tax year. It is important for small organizations to file the e-Postcard because, under the Pension Protection Act of 2006, if an organization fails to file for three consecutive years it will lose its tax-exempt status.

Some organizations do not have to file including organizations that are part of a group return, as well as churches, their integrated auxiliaries and conventions or associations of churches.

For more information, please give us a call and we will be happy to help you!

Sales Tax for Online Businesses

If you a run business with a physical storefront, collecting sales tax is pretty straightforward: you charge your customers the sales tax required by the jurisdiction where your business is located. So, if you operate a retail store in Nashville, Tennessee, you collect both state and local sales taxes from customers buying merchandise at your store.

Now, suppose you start selling your products online. Does that mean you charge them the same sales taxes on those coming into your store? It depends. If your business has a physical presence in a state, such as a store, office or warehouse, you must collect applicable state and local sales tax from your customers. If you do not have a presence in a particular state, you are not required to collect sales taxes.

In legal terms, this physical presence is known as a "nexus." Each state defines nexus differently, but all agree that if you have store or office of some sort, a nexus exists. If you are uncertain, whether or not your business qualifies as a physical presence, contact us and we will help clarify the matter for you. If you do not have a physical presence in a state, you are not required to collect sales taxes from customers in that state. This rule is based on a 1992 Supreme Court ruling (Quill v. North Dakota, 504 U.S. 298, (1992)) in which the justices ruled that states cannot require mail-order businesses, and by extension, online retailers to collect sales tax unless they have a physical presence in the state. The Court reasoned that forcing sellers to comply with over 7,500 tax jurisdictions was too complex for sellers to manage, and would put a strain on interstate commerce.

Keep in mind that not every state and locality has a sales tax. Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon do not have a sales tax. In addition, most states have tax exemptions on certain items, such as food or clothing. If you are charging sales tax, you need be familiar with applicable rates. Determining which sales tax to charge can be a challenge. Many online retailers use online shopping chart services to handle their sales transactions. Several of these services are programmed to calculate sales tax rates for you.

Please contact us for more information or on how we can help you in these matters.

Essentials of Estimated Taxes

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.

Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.

Who Must Pay Estimated Tax

If you had a tax liability for 2007, you may have to pay estimated tax for 2008.

General Rule
You must pay estimated tax for 2008 if both of the following apply.

1. You expect to owe at least $1000 in tax for 2008 after subtracting your withholding and credits.
2. You expect your withholding and credits to be less than the smaller of;
   • 90% of the tax to be shown on your 2008 tax return, or
   • 100% of the tax shown on your 2007 tax return. Your 2007 tax return must cover all 12 months.

Sole proprietors, partners, and S corporation shareholders - You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax.

Corporations - You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. .

Who Does Not Have To Pay Estimated Tax

If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to take more tax out of your earnings.  To do this, file a new W-4 form with your employer.

Estimated tax not required
You do not have to pay estimated tax for 2008 if you meet all three of the following conditions. 

• You have no tax liability for 2007
• You were a US citizen or resident for the whole year
• Your 2007 tax year covered a 12 month period

How To Figure Estimated Tax

Please contact us to help you calculate your estimated taxes. You must make adjustments both for changes in your own situation and for recent changes in the tax law.

When To Pay Estimated Taxes

For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment date. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

Please contact us for more information or on how we can help you in these matters.