California Sales and Use Tax Rate: Increases January 1, 2013

Tuesday, January 15th, 2013

Due to voter approval of Proposition 30, the statewide base sales and use tax rate will increase one quarter of one percent (0.25%) on January 1, 2013. The higher tax rate will apply for four years – January 1, 2013 through December 31, 2016.
 

Important Questions Regarding The Tax Increases

 
What rate will I need to charge my customer?

For transactions on or after January 1, 2013, the tax rate(s) will increase by one quarter of one percent (0.25%). In addition to the statewide sales and use tax rate, some cities and counties have voter-approved district taxes. If you are located in a special tax district, your sales or purchases will be subject to the increased statewide rate of 7.50%, plus the applicable district tax rate. For example, San Diego County taxes will increase from 7.75% to 8% on January 1, 2013.

For a listing of tax rates, please visit our California City and County Sales and Use Tax Rates webpage.
 
Are there also new city and county district taxes?

In addition to the statewide sales and use tax rate increase, voters in some cities and counties approved a number of new or increased district taxes that will go into effect April 1, 2013. Taxpayers in the affected areas will be notified by BOE. In addition, you may find information on these new taxes on our city and county tax rate website. (Note: April 2013 district tax rates will be posted to this webpage in mid-January 2013.)
 
Is the sales and use tax rate increase permanent?
 
No. The tax rate increase is effective for four years from January 1, 2013, through December 31, 2016.
 
If a customer purchases merchandise before January 1, 2013, but returns it after that date, what tax rate should I use to refund the tax payment?

You should refund the customer the tax that you charged and collected at the time of the sale.

 
I will need to reprogram my cash registers and computers for the new sales and use tax rate. My system breaks out the amounts for state, county, local, and district taxes. Where should I account for the 0.25% tax rate increase?

The 0.25% increase will be allocated to the state portion of the tax rate. For reporting purposes, the statewide base rate of 7.50% is separated as follows: state 6.25%, county 0.25%, and local 1% plus any local district tax.
 
I file my sales and use tax return on a fiscal yearly basis. The sales and use tax rate increase became effective in the middle of my reporting period. How will I report the two different sales and use tax rates?

You must file a split rate sales and use tax return that allows you to separate your sales made prior to January 1, 2013, and sales made on or after January 1, 2013. You will report the sales or use tax at the two different rates. Let us do the rate calculations for you by efiling your return. The eFile system will allow you to report the transactions using the two different rates on the split rate return.
 
What if I collect tax at the lower tax rate for sales made after January 1, 2013?

If you collect the sales and use tax at the lower tax rate after January 1, 2013, you will still owe the one quarter percent (0.25%) increase.

If you need help updating the rate in QuickBooks, I’d be happy to help. For more questions, please Contact me, Bridget Beck.
 
References: Excerpt from The Board of Equalization website: www.boe.ca.gov

W-9 Collection for 1099 Misc

Tuesday, January 15th, 2013

1099-MISC

A business must send out the 1099-MISC form to any person or business it pays funds $600 or more to for rent or services.  Independent contractors should be sent the 1099-MISC by the end of the January following the tax filing year, and the IRS needs its copy by Feb. 28 of the same year if you file with paper. Electronically filed forms must be sent in by March 31 to avoid a penalty.
 

The basic rule is that you must send 1099s to everyone to whom your company paid at least $600 during the year, and you must file copies with the IRS.

 
There are two very large exceptions to this rule:

• First, you do not have to report payments made to corporations, including your independent sales contractors who have incorporated their own businesses; you only report payments to proprietorships, partnerships and limited liability companies.

The exception to this exception is that you must report payments to corporations owned by lawyers, health care providers and (believe it or not) fish sellers, if the payments were for business purposes.

• Second, you do not have to report payments for the purchase of tangible things such as merchandise, furnishings and supplies; you only report payments for services and rents.

IMPORTANT!

Changes have been made to reporting rules for the 1099 IRS form, known as the “miscellaneous income” form, typically completed by freelance writers and independent contractors. This form is not applicable to those who are full-time employees.
 

Short Overview

Here is a short overview to help you understand the changes:

Who the new rules affect

If you were completing 1099 forms before, you will have to adjust to the new reporting requirements. This recent tax regulation applies to all for-profit corporations, except for tax-exempt organizations. If you report inaccurate or incomplete information, you may face penalty fines.

What has changed

The biggest change is mostly the volume of paperwork. Previous rules only required businesses to submit 1099 forms for payments greater than $600, typically made to independent contractors. New regulations will require 1099 forms only for payments made by check, cash, or online billpay at your bank.  If you pay with credit card, debit card, or Paypal, no 1099 is required.  Why?  Because the Merchant Service companies are taking over that duty, and they will issue a 1099-K.

This can get very complicated if you pay a contractor with different methods throughout the year.  For example, do you owe the contractor a 1099 if you paid him $600 via Paypal and $500 by check?  The answer is no you do not.  Do you owe a contractor a 1099 if you paid him $600 by check $300 by credit card, and $500 by Paypal?  Yes, you do, but only for the $600 you paid him by check.

Please get some bookkeeping assistance on how to segregate different payment types among vendors – threre are automated QuickBooks tools that can be used to save time and maintain accuracy.

What You Need To Do

1. Collect a completed W9 form from each contractor.  Blanks can be downloaded at www.irs.gov

2. Submit all W9’s to your Bookkeeper so the data can be entered into QuickBooks.

3. Make sure you have a valid email for each vendor in QuickBooks that will be receiving a 1099.

4. Contact Bridget Beck at Big Cheese Business Services for assistance in making sure your entries are correct and for help filing 1099’s electronically.

For more questions, please CONTACT me, Bridget Beck.

Standard Mileage Rate Change 2013

Tuesday, January 15th, 2013

Excerpt from www.irs.gov

R-2012-95, Nov. 21, 2012

WASHINGTON — The Internal Revenue Service today issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 56.5 cents per mile for business miles driven.
  • 24 cents per mile driven for medical or moving purposes.
  • 14 cents per mile driven in service of charitable organizations.

The rate for business miles driven during 2013 increases 1 cent from the 2012 rate. The medical and moving rate is also up 1 cent per mile from the 2012 rate.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51. Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

 

For more information, or tips on the easiest ways to track your mileage, please Contact Bridget Beck.

For more questions, please CONTACT me, Bridget Beck.