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STIMULUS PACKAGE 3: March 2021

Here we go again with the third and most likely the last stimulus check we, Americans, will be getting. The coronavirus has hit us and the world hard. We have lost many life’s and it has impacted each individual in many ways. We are lucky that the government has stepped up and provided us with a variety of stimulus packages.

On March 6, 2021,  the Senate approved President Biden’s $1.9 Trillion Economic Plan. The plan includes extending unemployment benefits, providing funds to states and local governments, helping schools to reopen and support coronavirus testing and vaccine distribution.  After the president signs the bill it into the law, then we can start seeing checks distributed.

WHAT TO EXPECT

Stimulus Checks of $1400

Eligible: Individuals making under $80,000 and couples making under $160,000 will receive a payment of $1,400 per person and $1,400 per dependent. These will decrease for those above this income level.

Non-Eligible: Persons making $80,000 or more or $160,000 or more jointly will not be eligible.

Unemployment Benefits of Additional $300 Per Week

Unemployment will be extended through early September and will include a $300 per week federal supplement. This includes a provision that waives federal incomes taxes for the first $10,2000 of unemployment benefits received in 2020 for households that made $150,000 or less. This will help lower tax bills for those individuals.

Child Tax Credit Increases

The bill would temporarily increase child tax credit. Currently, the credit is set at $2,000 for children under 17.

New legislation will include: Credit will increase up to $3,600 for children five and under. Credit will increase up to $3,000 for children between ages 6 to 17.

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Gym Fitness Bookkeeping Chart of Accounts

Every business requires a chart of accounts. Wait, WHAT IS A chart of accounts!? As a business owner, a gym/fitness owner you get out of bed and don’t think accounting. But, I do and I am here to help. As the owner, you don’t need to know it all, but you do need to know the basics and how to read financial statements if you want to grow your business. Just like your own fitness clients, some want to get results and others want in depth knowledge in what to eat and which exercises improve a certain muscle. Be the owner that wants to improve and learn what each account affects. I am planning on making some 101 brochure’s to help you in the path of accounting. Check back often to learn more on the basics specifically for gym’s and fitness centers.

Let’s jump in.

Chart of Accounts

The chart of accounts is a list/categories used to record all your business entries. Each industry has a slight difference chart of accounts but they all have the main accounting categories. The main categories are Assets, Liabilities, Owners Equity, Revenue, and Expenses. Once you get the basics you can always add more when you want to hone into a certain muscle, I mean account.

Now, lets dig in a little deeper and see how each chart of accounts is built. After all, everything is structured to be easily understood by all. In accounting we always have two financial reports that shows us the picture of our business. The first report is the Balance Sheet and this shows us a snapshot of three categories; Assets, Liabilities, and Owners Equity. The second report is the Income Statement (AKA Profit/Loss Statement) which is a recap of 2 categories; Income and Expenses.

Balance Sheet Accounts  

– Assets
– Liabilities
– Owner’s Equity

Income Statement Accounts

– Revenues
– Expenses
– Misc Income & Expenses

(Check out the posts about the Balance Sheet and Income Statement for more info there).

Remember to keep your chart of accounts simple and add to it as you grow. You want it to be easily understood by you. You can always add more accounts if you notice discrepancies where you want to focus on the big picture of the account. The accounts are an easy way for an owner to see changes. Monthly reports help see the totals, but detail reports help you see the fine lines in an account.

Here is a Chart of Account I use for Gym Fitness Businesses on a Cash Basis Method.

Balance Sheet: Asset Accounts

100****  Checking Account (* are the last 4 digits of the account number)
110****   Savings Account (* are the last 4 digits of the account number)
160      Prepaid Insurance
175      Buildings (if you own your building)
176      Accumulated Depreciation – Buildings
180      Equipment (Fitness Equipment)
181      Accumulated Depreciation – Equipment

Balance Sheet: Liability Accounts

210      Wages Payable
220      Interest Payable
230      Unearned Training Revenue
240      Mortgage Payable (if you own your building)

Balance Sheet: Owner’s Equity Accounts

300      Capital Deposits – Owner X
310      Capital Withdraws – Owner X
320      Retained Earnings (Summary of Profit/Loss)

Income Statement: Revenue Accounts

400      Gym Membership Monthly Training Sales
405      Gym Nutrition Sales
406      Gym Merchandise Sales

Income Statement: Expense Accounts

500     Cost of Merchandise Sold (Generic)
501 Direct Coach Labor
505     Cost of Nutrition Purchase
506     Cost of Gym Merchandise Sold
601      Advertising
602      Bad Debts
603      Bank Charges
604      Charitable Contributions
605      Dues & Subscriptions
606      Gym Supplies/Equipment
607       Insurance
608      Janitorial & Cleaning
609      Lease Expense
610       Legal Expense
611        Licenses & Permits
620      Meals & Entertainment – (Generic/Unsure)
621      Meals & Entertainment – 100% Deductible
622      Meals & Entertainment – 50% Deductible
630      Office Expense
640      Payroll Expense – Coaches
643      Payroll Expense – Admin
644      Payroll Expense – Owner’s Pay
650      Payroll Tax Expense
660      Rent
661       Repairs & Maintenance
665      Training & Education
667      Travel
670      Utilities (I include gas, water, electricity, phone, internet, cable)
800     Amortization
805      Depreciation

Income Statement – Other/Misc Income & Expense

850      Interest Income
860      Interest Expense

Use this chart of accounts to get your gym fitness cash basis bookkeeping started.

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What is the difference between IRS Form 1099-NEC and Form 1099-MISC?

Beginning with tax year 2020, the 1099-MISC has been redesigned due to Form 1099-NEC. Employers will no longer report nonemployee compensation, such as payments to independent contractors, on Form 1099-MISC.

Form 1099-NEC

This tax year 2020, employers must use Form 1099-NEC to report nonemployee compensation, if the following criteria is met.

  1. Payment made to someone who is not your employee.
  2. Payment made for services of your business
  3. Payment made to an individual, a partnership, or an estate.
  4. Payments made of $600 or more during the year.

This nonemployee compensation are payments made to independent contractors, fees paid for professional services such as of attorneys and accountants, and commissions paid to nonemployee salespersons that are subject to repayment but not repaid during the calendar year.

Form 1099-NEC must be given by employers to the individual and filed to the IRS by January 31, 2021.

Form 1099-NEC example:

1099NEC.gif

Source: Internal Revenue Service

Form 1099-MISC

This tax year 2020, employers must use Form 1099-MISC to report payments made if the following criteria is met.

  • At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
  • At least $600 in the following:
    • Rents.
    • Prizes and awards.
    • Other income payments.
    • Generally, cash from a notional principal contract to an individual, a partnership or an estate.
    • Medical and health care payments.
    • Payments to an attorney.
    • Section 409A deferrals.
    • Nonqualified deferred compensation.

Form 1099-MISC must be given by employers to the individual by January 31, 2021 and filed to the IRS by February 28 or March 31st if filed electronically.

Form 1099-MISC example:

1099-MISC

Source: Internal Revenue Service

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Real Estate Investor Tax Expenses

Real estate is one of the most popular investment strategies in California. It is a great way for real estate agents and real estate related investors look for protecting and growing one’s wealth. Real Estate Rentals or Real Estate Flipping both have different approaches when it comes to tax write off’s. We are going to focus on the Real Estate Rental tax write off’s as I have been asked more questions in regards to rental write offs. The key to remember in any business, is that all expenses must be ordinary and necessary.

The IRS lets you deduct ordinary and necessary expenses required to maintain the property that you rent to others, even when the property is vacant, as long as you’re trying to rent it.

What are the best Real Estate Rental Tax Deductions?

  • Deduction
  • Depreciation

These are the top 2 tax deductions that benefit an investor each year.

Deduction

Deductions are qualified expenses used for your rental business in the year they are paid. Wait, what is a qualified expenses and aren’t all expenses qualified. No, not all expenses are treated equally for tax purposes. An example on a non-qualified expense would a personal car purchase that is used 10% of the time to visit the property.

As the property manager you can deduct the ordinary and necessary expenses for managing, conserving, and maintaining the property. Generally yearly expenses include mortgage interest, property taxes, advertising, maintenance, utilities and insurance. Because repairs keep a property in good condition and do not add value to the property, investors can write off repairs. Examples include fixing leaks, painting, and replacing broken parts of the rental property. Caveat, large repairs can be considered a capital improvement. Check with you local tax professional if the repair was a substantial expense for clarification on how to categorize it.

Tip: It’s important that real estate investors itemize deductions carefully. Owning your business, deductions can come in other forms. Such as using your home office. In many cases, you can deduct a portion of their home working expenses such as Internet, phone bill, office lease, and printer expenses.

Types of most common Rental Property Qualified Expenses

  • Advertising
    • Advertising expenses include rental signs and marketing the rental unit on sites (including social sites). If you are your own marketer and purchase a camera that is ordinary and necessary used for the purpose of rental marketing photography, it can be a qualified expenses.
  • Auto and travel expenses
    • Travel expenses must be specific to the rental property. Documentation is highly recommended to provide proof when audited. Documentation should at a minimum provide information that shows date, mileage, who you met, and description of travel reason.
      i.e. 10/11/2020 – 10 miles travel by car maintenance service with ABC contractor.
  • Cleaning and maintenance
    • Cleaning and Maintenance expenses include expenses incurred when the unit is turnover to a new tenant.
  • Commissions
  • Depreciation
  • Insurance
  • Interest (other)
  • Legal and other professional fees
    • Legal and other professional fees include fees paid to lawyers, bookkeepers, accountants, and tax preparers.
  • Local transportation expenses
  • Management fees
    • Management fees include all payments made to a property management company that manage the property.
  • Mortgage interest paid to banks
    • Mortgage Interest
    • Refinance Fees and Mortgage Points: Classified in Assets/Depreciation section instead of the expense section. The IRS considers them “amortizable intangibles”. Basically, they are expensed over the projected life of the asset (amortization).
  • Points
  • Rental payments
  • Repairs
    • Repairs expenses can be a little difficult to categorize. Typically you want to record all repairs expenses that are incurred to keep the property assets in proper working order. Large repairs should be categorized under the depreciation expense if it will improve the property and extend the useful life of the assets.
      i.e. Roof patch repair is a repair expense. Roof repair, if repairing a large portion of the roof can be consider a asset improvement and will need to be depreciated.
  • Taxes
    • Tax expenses include property taxes and other related tax expenses.
  • Utilities
    • Utility expenses include utilities that are paid by the owner. If the tenant pays utility bills, then the owner can not claim it as an expense.

Depreciation

Depreciation are large expenses or improvements that will be spread over a number of years. Say that again. A depreciation is a form of spreading a large capital improvement expense over a period of time, usually numerous years.

For example, installing a new Air Conditioning unit. If the air conditioner were to break down and you are looking to replace it. This service is not a repair and instead is a capital improvement. A air conditioner installation in California averages around $7,000 and the IRS depreciation table indicates that this asset must be depreciated over 27.5 years. Which really means, you paid $7,000 this year, but the IRS only lets you expense $254 this year and $254 the other 26 years.

The Taxable Numbers:
+ Rental Income: $12,000 ($1,000 per month)
– Utilities: $1,200 ($125 per month)
– Taxes: $1,200 (Annual property tax)
– Insurance: $1,200 ($125 per month)
– Depreciation: $254 (A/C Depreciation)
= Taxable Profit: $8,146

Your Bank Numbers:
+ Rental Income: $12,000 ($1,000 per month)
– Utilities: $1,200 ($125 per month)
– Taxes: $1,200 (Annual property tax)
– Insurance: $1,200 ($125 per month)
– A/C Installation: $7,000 (A/C installation)
= Annual Profit: $1,400

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Business Expenses for IRS Reporting

The general rule for deducting business expenses are the costs of carrying on a trade or business and are usually deductible if the business is operated to make a profit.

For an expense to qualify as a deduction come tax time, the expense must be both ordinary and necessary.

Qualified Business Expense Test

  • Is the expense ordinary and commonly accepted in your industry?
  • Is the expense necessary and helpful in operating your trade/business?

An expense does not have to be essential to be considered necessary. Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. In some cases, you may not be allowed to deduct the expense at all. Therefore, it is important to distinguish business expenses and include them into the following 3 categories.

  • Cost of Goods Sold (COGS)
  • Capital Expense
  • Personal Expense

Learn More about the different type of categories in a different post.

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IRS-Publication-535-1Download
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IRS NEWS: New Tax Debt Relief Rules

Posted from IRS website.
https://www.irs.gov/newsroom/irs-makes-it-easier-to-set-up-payment-agreements-offers-other-relief-to-taxpayers-struggling-with-tax-debts

IR-2020-248, November 2, 2020

WASHINGTON — The Internal Revenue Service today announced a number of changes designed to help struggling taxpayers impacted by COVID-19 more easily settle their tax debts with the IRS.

The IRS assessed its collection activities to see how it could apply relief for taxpayers who owe but are struggling financially because of the pandemic, expanding taxpayer options for making payments and alternatives to resolve balances owed.

“The IRS understands that many taxpayers face challenges, and we’re working hard to help people facing issues paying their tax bills,” said IRS Commissioner Chuck Rettig. “Following up on our People First Initiative earlier this year, this next phase of our efforts will help with further taxpayer relief efforts.”

“We want people to know our IRS employees are committed to continue helping taxpayers wherever possible, including offering many options for those struggling to pay their tax bills,” said Darren Guillot, the IRS Small Business/Self-Employed Deputy Commissioner for Collection and Operations Support. Guillot discussed the new relief options in a new edition of IRS “A Closer Look.”

Taxpayers who owe always had options to seek help through payment plans and other tools from the IRS, but the new IRS Taxpayer Relief Initiative is expanding on those existing tools even more.

The revised COVID-related collection procedures will be helpful to taxpayers, especially those who have a record of filing their returns and paying their taxes on time. Among the highlights of the Taxpayer Relief Initiative:

  • Taxpayers who qualify for a short-term payment plan option may now have up to 180 days to resolve their tax liabilities instead of 120 days.
  • The IRS is offering flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted Offer in Compromise.
  • The IRS will automatically add certain new tax balances to existing Installment Agreements, for individual and out of business taxpayers. This taxpayer-friendly approach will occur instead of defaulting the agreement, which can complicate matters for those trying to pay their taxes.
  • To reduce burden, certain qualified individual taxpayers who owe less than $250,000 may set up Installment Agreements without providing a financial statement or substantiation if their monthly payment proposal is sufficient. 
  • Some individual taxpayers who only owe for the 2019 tax year and who owe less than $250,000 may qualify to set up an Installment Agreement without a notice of federal tax lien filed by the IRS.
  • Additionally, qualified taxpayers with existing Direct Debit Installment Agreements may now be able to use the Online Payment Agreement system to propose lower monthly payment amounts and change their payment due dates.

Additional details on the Taxpayer Relief Initiative

The IRS offers options for short-term and long-term payment plans, including Installment Agreements via the Online Payment Agreement (OPA) system. In general, this service is available to individuals who owe $50,000 or less in combined income tax, penalties and interest or businesses that owe $25,000 or less combined that have filed all tax returns. The short-term payment plans are now able to be extended from 120 to 180 days for certain taxpayers.

Installment Agreement options are available for taxpayers who cannot full pay their balance but can pay their balance over time. The IRS expanded Installment Agreement options to remove the requirement for financial statements and substantiation in more circumstances for balances owed up to $250,000 if the monthly payment proposal is sufficient. The IRS also modified Installment Agreement procedures to further limit requirements for Federal Tax Lien determinations for some taxpayers who only owe for tax year 2019.

In addition to payment plans and Installment Agreements, the IRS offers additional tools to assist taxpayers who owe taxes:

Temporarily Delaying Collection — Taxpayers can contact the IRS to request a temporary delay of the collection process. If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves.

Offer in Compromise — Certain taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an Offer in Compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool. Now, the IRS is offering additional flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted offer in compromise.

Relief from Penalties — The IRS is highlighting reasonable cause assistance available for taxpayers with failure to file, pay and deposit penalties. First-time penalty abatement relief is also available for the first time a taxpayer is subject to one or more of these tax penalties.

All taxpayers can access important information on IRS.gov. Many taxpayers requesting payment plans, including Installment Agreements, can apply through IRS.gov without ever having to talk to a representative.

Other requests, including this new relief, can be made by contacting the number on the taxpayer’s notice or responding in writing. However, to request relief, the IRS reminds taxpayers they must be responsive when they receive a balance due notice.

“If you’re having a tax issue, don’t go silent. Please don’t ignore the notice arriving in your mailbox,” Guillot said. “These problems don’t get better with time. We understand tax issues and know that dealing with the IRS can be intimidating, but our employees really are here to help.”

Throughout COVID-19, the IRS has continued to adjust operations to help ensure the health and safety of employees and taxpayers, including the extensive and temporary relief of the IRS People First Initiative. More information and background on the collection relief and procedures can be found in “A Closer Look.”

“While it’s been important for us and the nation to resume our critical tax compliance responsibilities, we continue to assess the wide-ranging impacts of COVID-19 and other difficulties people are experiencing,” Guillot said.

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2020 Tax Brackets

Every year the IRS adjusts more than 40 tax provisions for inflation.

The IRS used to use the Consumer Price Index (CPI) to calculate the past year’s inflation.[1] However, with the Tax Cuts and Jobs Act of 2017, the IRS will now use the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly.[2]

2020 Federal Income Tax Brackets and Rates

In 2020, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Table 1). The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $518,400 and higher for single filers and $622,050 and higher for married couples filing jointly.

2020 Federal Tax Bracket
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How to form a California LLC

Once a month I get a a new business owner that wants to create an LLC because someone told them that an LLC protects you from liability. Most of the time as a small business owner, we loose focus on where we are starting and we focus on where we are going to be in 5 years. While, I encourage planning for the future, we first we need to remember where we want to start. If you are new to the business world, we must learn to crawl before we consider ourselves an Olympic athlete. With that, I always have a set of questions I ask new business owners to a better idea of where the business owner is currently at in determining the best fit for the business.

Keep in mind that your business has is setup to have a legal entity and a tax entity. If you decide to create an LLC as a legal entity, you can choose to have your LLC taxed as a Sole Proprietary or as a Corporation. But more on that at a later post. For now let us focus on reasons and non-reasons to set-up a LLC as a legal entity.

Top Reasons for an LLC (Legal Entity)

  • Own Rental Property
    • Consider having a category of properties over one LLC per property.
  • Need Asset Protection
    • Looking to protect assets from the operations of the business. Such as lawsuits from contractors or clients.
  • Partnership
    • Highly recommend as each business partner is protected from the actions of another partner.

Top Reasons NOT To Create an LLC (Legal Entity)

  • Tax Savings
    • LLC does not save taxes in itself
      • In Fact, in California you must pay a minimum of $800 a year in taxes
      • Self Employment Tax still applies (Unless your Tax Entity is a Corporation)

Follow these steps to create/form your California LLC.

  1. Check to see if your business name is unique and available to use
  2. Look into creating an EIN. Not necessary but highlight recommended before starting an LLC.
  3. Fill out Form LLC-1 and file it at California Secretary of State. Plus pay a filing fee of $70 and $ 5 certification fee
    1. When choosing the LLC. Decide the abbreviation form you prefer to use after your business name.
      1. LLC
      2. L.L.C
      3. Limited Liability Co.
      4. Limited Liability Company
      5. Ltd. Liability Company
      6. Ltd. Liability Co.
    2. Provide the business address (No PO BOX)
    3. Decide the Legal Entity (Not the same as tax entity)
      1. Individual
      2. Corporation
    4. Decided Member Management (Who will manage the LLC)
      1. Member Managed
      2. Owner Managed
  4. Prepare Operating Agreement
    1. The agreement should include guide on members percentage, voting powers, rights and responsibilities to each entity, profit/loss distribution, rules for meetings and votes, buy out and buy sell provisions to help when members leave or wants to join.
    2. Fee plus state filling fees.
  5. File Form LLC-12 the Biennaial Report to update the state of LLC Status
  6. Annual state Tax payment of $800. If net income is over $250,000, then additional fees may apply.
California Form LLC-1Download

LLC Import Notations

An LLC is not just filing a paper with California state. Treat the LLC formation and maintain the operations of the business as a corporation to keep the same type of protection. Check my blog for my post on Corporation and asset protection.

An LLC can be structured to have multiple LLC’s. The Mother LLC and all baby LLC under. More on creating multiple LLC’s on a different post.

Keep in mind when creating your business LLC, that you keep in mind the states processing time.

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California Seller’s Permit and Certificate

When a business purchases inventory to resell, they can do so without paying sales tax.  In order to do so, the retailer will need to provide a California Resale Certificate to their vendor. 

What is a Resale Certificate?

When retailers purchase products to resell, they often don’t pay sales tax on the purchase.  Instead of the retailer paying sales tax, the retailer charges sales tax to their customer on the final value of the merchandise.  The collected sales tax is then sent by the retailer to the Department of Tax & Fee Administration. 

For example, when a vitamin store purchases nutritional vitamins to sell in their gym, by having a resale certificate, the gym owner won’t pay sales tax on the transaction.  When a client purchases the health vitamins, the retailer will charge sales tax to the client based on the full price of the purchase.  The retailer will collect the sales tax from all their transactions and periodically (typically at the end of the quarter) send the sales tax to the California state.

The Resale Certificate is the seller’s evidence why sales tax was not collected on a transaction.  Similar names for a Resale Certificate include Reseller Number, Seller’s Permit, Exemption Certificate or Reseller’s License.  In order to prove a buyer intends to resell the product, they must provide a valid resale certificate to the seller of the goods.

*Resale certificates are ONLY to be used for inventory that will be resold. It is not for tax-free purchase of items used in normal business operations such as paper, pens, etc.

Getting Started

Before a business starts selling products or providing taxable services, they must first get a California Seller’s Permit from the California Department of Tax & Fee Administration. The Seller’s Permit is sometimes referred to as a Sales Tax Permit, Sales Tax Number, or Sales Tax License.

The Sales Tax Permit and Resale Certificate are commonly thought of as the same thing but they are actually two separate documents. The Sales Tax Permit allows a business to sell and collect sales tax from taxable products and services in the state, while the Resale Certificate allows the retailer to make tax-exempt purchases for products they intend to resell.

After registering, a sales tax number will be provided by the Department of Tax & Fee Administration. This number will be listed on the Resale Certificate.

A resale certificate can be generated by the buyer or seller provided their certificate contains the required information. To make things easier, the Department of Tax & Fee Administration has a Resale Certificate (BOE-230) that is available for download to document tax-free transactions. 

Resale Certificate Fillable Form

Fillable California Resale Certificate - Form CDTFA-230

How to fill out the California Resale Certificate – Form BOE-230

Filling out the BOE-230 is pretty straightforward, but is critical for the seller to gather all the information.

The California Department of Tax & Fee Administration requires the seller to have a correctly filled out BOE-230 Resale Certificate.  If filled out incorrectly, the seller/supplier could end up owing sales taxes that should have been collected from the buyer in addition to penalties and interest.  

Steps for filling out the BOE-230 California Resale Certificate

Step 1 – Download the California Resale Certificate Form BOE-230 
Step 2 – Enter the seller’s sales tax permit number
Step 3 – Describe the business activities of the seller
Step 4 – Enter the business name of the seller
Step 5 – Describe the property being purchased for resale.  Be sure not to be generic and described by either by an itemized list or by a general description.
Step 6 – Enter the name, signature title, address and phone number of the purchaser

The resale certificate is kept on file by the seller and is not filed with the state.

Does a California Resale Certificate Expire?

A resale certificate in California is valid until it is revoked in writing by the seller, unless the certificate was issued for a specific transaction, which is generally good for up to one year.   

Providing a Seller with a Resale Certificate

If the seller/supplier doesn’t accept the certificate, the buyer will have to pay sales tax on the merchandise being purchased.  In most cases, they will be able to get a credit for the sales taxes paid later on their sales tax filing. 

CALIFORNIA:
It the seller is out-of-state, California is one of a few states that don’t recognize out-of-state resale certificates.  In order to purchase tax-free from vendors in other states, the buyer will have to register for a sales tax permit in the seller’s state. 

Accepting a Resale Certificate

When a business is presented with a resale certificate, it is the seller’s responsibility to verify the buyer’s information is correct and maintain records to demonstrate the seller’s due diligence.  Failing to verify this information may put the liability of paying California sales taxes on the seller.   It’s also important to note that a seller could end up with a misdemeanor charge if they issue a resale certificate in order to avoid collecting sales tax from a buyer. This charge can come with a fine of $1,000 to $5,000 and/or imprisonment for up to one year.

Before accepting a resale certificate, a seller should:

  • Review the resale certificate to make sure it is completely filled out. 
  • Verify the purchaser’s sales tax permit. Visit California Department of Tax and Fee Administration’s to verify or call (888) 225-5263.
  • Verify that the goods sold match the description with the purchaser’s line of business. i.e. a office furniture store that is looking to buy office supplies tax-free will not be acceptable.  
  • Keep a copy and file of the resale certificate
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IRS Announces Temporarily Digital Signatures

On August 28, the IRS announced that it would temporarily allow the use of digital signatures on certain forms that cannot be filed electronically. Today, the agency added several more forms (PDF) to that list.

The IRS made this decision to help protect the health of taxpayers and tax professionals during the COVID-19 pandemic. The change will help to reduce in-person contact and lessen the risk to taxpayers and tax professionals, allowing both groups to work remotely to timely file forms.

The IRS added the following forms to the list of those being accepted digitally:

  • Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return;
  • Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return;
  • Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;
  • Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;
  • Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; and
  • Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.

The below list was announced August 28, and all of these forms can be submitted with digital signatures if mailed by or on December 31, 2020:

  • Form 3115, Application for Change in Accounting Method;
  • Form 8832, Entity Classification Election;
  • Form 8802, Application for U.S. Residency Certification;
  • Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit;
  • Form 1120-RIC, U.S. Income Tax Return For Regulated Investment Companies;
  • Form 1120-C, U.S. Income Tax Return for Cooperative Associations;
  • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;
  • Form 1120-L, U.S. Life Insurance Company Income Tax Return;
  • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return; and
  • Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms.

The IRS will continue to monitor this temporary option for e-signatures and determine if additional steps are needed.

In addition, the IRS understands the importance of digital signatures to the tax community. The agency will continue to review its processes to determine where long-term actions can help reduce burden for the tax community, while at the same appropriately balancing that with critical security and protection against identity theft and fraud.

https://www.irs.gov/newsroom/irs-adds-six-more-forms-to-list-that-can-be-signed-digitally-16-now-available

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