The Effect of TCJA on Kansas Taxpayers

The Tax Cuts and Jobs Act (TCJA) took effect for tax year 2018. The TCJA lowered the income tax rates for individuals and nearly doubled the standard deduction. The federal standard deduction increased to $12,000 for single taxpayers and $24,000 for married filing joint taxpayers, with additional amounts for those over 65 and/or blind. We have been preparing projections for months to see how clients will be affected by the changes. The Joint Committee on Taxation estimates that about 88 percent of the households that file tax returns will take the increased standard deduction on their federal returns.

How does this affect Kansas taxpayers? For individual federal income taxes, taxpayers may claim either the standard deduction or itemized deductions, a more complex option. Some previously deductible items have been eliminated or limited by TCJA. For Kansas individual income tax returns, taxpayers may take itemized deductions only if they took itemized deductions on the federal return. These are subject to certain further limitations for the deduction to be allowed on the Kansas return. If they take itemized deductions on the federal return, they may also opt to take the standard deduction on Kansas if that is more advantageous for them. However, if taxpayers choose to take the standard deduction on their federal return, they must also take the standard deduction on the Kansas return. The current standard deduction for Kansas is $3,000 for single and $7,500 for married filing joint.

With such a large percentage of households that will now take the standard deduction on their federal return, they will be forced to take the standard deduction on their Kansas return. This could have a significant impact on their Kansas tax liability, as well as revenue to the state.

For years, Kansas tax law was considered "conforming to Federal law". But that ship has sailed with the dramatic changes beginning in 2013 and subsequent years. During the 2018 legislative session, a bill was introduced that would have given taxpayers the option to choose itemized or standard deduction, but that bill did not pass.

If you have strong feelings, one way or the other on whether Kansas taxpayers should have the option to choose between standard or itemized deductions in the future, or if the standard deductions should be changed, please contact your state legislators. Call us if you have questions on how the law change could affect your individual tax situation.

BT&Co. acquires CBIZ MHM, LLC and Mayer Hoffman McCann P.C. Topeka location

Berberich Trahan & Co., P.A. (BT&Co.) has acquired the Topeka office location of CBIZ MHM, LLC and Mayer Hoffman McCann P.C. (CBIZ MHM) effective January 1, 2019.

"For 105 years, Berberich Trahan has offered exceptional service to clients in eastern Kansas," said Karen Linn, BT&Co. managing director. "We are excited to grow the business with the CBIZ employees and clients by exploring new opportunities with a continued focus on service and commitment."

As a result of the acquisition, BT&Co. will have more than 50 employees to provide an array of accounting services and technical expertise to clients. With its expanded presence in the region, BT&Co. will operate out of both Topeka office locations until the fall of 2019, when the business will relocate to a new office that will accommodate the combined team. The new business will operate under the name Berberich Trahan & Co., P.A.

Founded in 1913, BT&Co. is one of the leading local accounting firms in eastern Kansas. For over a century, BT&Co. has provided audit, tax, general accounting, and consulting services, specializing in local governmental entities, nonprofit organizations, and employee benefit plans in its audit services and nonprofit and for-profit entities in its tax, general accounting, and consulting services. Since 1998, BT&Co. has been formally associated with the world’s fifth-largest accounting firm, RSM US LLP, as a member of the RSM US Alliance.

The CBIZ MHM Topeka office served the region for 40 years and, as BT&Co., will continue to provide audit, tax, general accounting, and consulting services, specializing in the real estate, construction, nonprofit, and health care industries. Chris Spurio, President of CBIZ Financial Services, stated, “We are pleased to have found the right fit to serve the needs of our Topeka staff and clients.”

Education Costs Going Bonkers?

Everyone knows that college costs are expensive, but do you know that elementary and secondary tuition amounts can be costly, too?  A way to prepare for rising education costs is to set up and contribute to a 529 plan.  Prior to January 1, 2018, a contributor would establish an account for the benefit of a designated beneficiary to provide for that beneficiary’s higher education expenses.  Qualified higher education expenses include:

·         tuition,

·         fees,

·         books,

·         supplies,

·         equipment (including technology) required for the enrollment or attendance at an eligible educational institution,

·         expenses for special needs services in the case of a special needs beneficiary that are incurred in connection with such enrollment or attendance, and

·         room and board for students who are enrolled at least half-time.

The Tax Cuts and Jobs Act of 2017 modified the rules of 529 plans.  After December 31, 2017, 529 plans now allow for up to $10,000 in annual distributions for tuition in connection with the enrollment or attendance of the designated beneficiary at a public, private or religious elementary or secondary school.  This limitation applies on a per-student basis, rather than a per-account basis.  So now, not only can you pay for college from the 529 accounts, you can also pay for elementary school and high school from these accounts.  This is a beneficial modification for those who pay significant elementary and high school tuition.

There are tax benefits available for using these accounts.  First, the investment growth is federal tax-free as long as the money is used for educational purposes.  Second, 34 states offer residents a tax deduction or credit for 529 plan contributions.  Most states require that you invest in your home state’s plan to qualify for the deduction or credit, but 6 states including Kansas offer tax benefits for residents who invest in any state’s 529 plan.

Be smart! Start as soon as possible. You can set up a plan as soon as your baby is born and has been assigned a Social Security number. Think about gifting. It is a perfect opportunity for grandparents who want to gift money to their grandchildren. Don’t let education costs go bonkers before you start saving!

Happy Half Birthday!

If you had a summer birthday when you were in grade school, you got to celebrate your half birthday during the school year.  Maybe since then you haven’t cared about it or would really prefer to forget your birthday altogether.  If you are turning 70 ½ this year though, you will join roughly 25 million Americans who need to mark their calendars.  For this first year, you can delay your required minimum distribution, or RMD, until April 1st of 2019.  For every year after, you must take your RMD from your traditional IRAs, SEP IRAs, SIMPLE IRAs or employer retirement plans by December 31st to avoid an IRS penalty.  

If you are now required to take an RMD and are also charitable-minded, you should consider a Qualified Charitable Distributions, or QCD. Under the new tax law, fewer taxpayers will be able to itemize with the increased standard deduction, which is giving QCDs elevated popularity.  The idea is that you would give your RMD directly to your favorite charity, which avoids income tax on the distribution and can also provide other tax benefits as a result of the decrease in adjusted gross income.

Call us for more details and to discuss the benefit to your personal tax situation!   

What does the Wayfair decision mean?

The Supreme Court ruling yesterday overturned the nearly two decades old ruling of Quill Corp v North Dakota that had governed how states could collect sales tax on interstate sales.  The Quill decision previously required retailers have a physical presence (i.e. warehouse, distribution center, brick-and-mortar store, employees) in a state before they were required to collect sales tax in that state.  South Dakota v. Wayfair Inc. means now sales alone are enough to create sales tax nexus in a state. 

The states have long said those purchasing goods from out-of-state sellers should pay use tax if the retailer didn’t collect sales tax.  That hasn’t been happening.  As internet sales continue to expand and brick-and-mortar stores continue to close, the states are left with empty wallets from those missing sales tax dollars.  Estimates put the lost sales tax revenue for the state of Kansas around $200 million annually. 

This Supreme Court ruling suggests technological advancements contributed to overturning the 1992 QuiII decision.  Justice Kennedy cited a staggering statistic, that “[i]n 1992, mail-order sales in the United States totaled $180 billion.  Last year, e-commerce retail sales alone were estimated at $453.5 billion.” 

Most larger retailers already collect sales tax in multiple states.  As each state sets their own rules for what is a taxable sale and what is nontaxable, smaller businesses may feel an administrative burden collecting and remitting the correct sales tax under the new ruling. 

States are attempting to make following the rules small business friendly.  Massachusetts implemented regulations last fall making online sellers that do more than $500,000 in sales or at least 100 transactions in their state collect and remit state sales tax.  South Dakota’s law, that initiated this Supreme Court case, requires any entity with a minimum of $100,000 in annual sales or 200 individual transaction within the state to collect sales tax. 

Now that the Supreme Court has shown their support for South Dakota’s interstate sales tax law, some are estimating the state of South Dakota will move forward with collecting sales tax in as little as 30 to 90 days. Other states will likely start adjusting their laws under the new guideline.  Those living in the five states without sales tax --Alaska, Delaware, Montana, New Hampshire, and Oregon – will continue to not be subject to sales tax, unless their state laws change.  As we move forward, we’re here to help guide businesses through the changes.