INCOME AND SALES TAX ISSUES FOR PHOTOGRAPHERS AND RELATED - - PowerPoint PPT Presentation

INCOME AND SALES TAX ISSUES FOR PHOTOGRAPHERS AND RELATED PROFESSIONS

Debbie Moran, CPA

Photographers

INCOME TAXES

Structure - What’s Best For You

 Legal vs Tax

What’s New

 Tax Cuts and Jobs Act (TCJA)

STRUCTURE - WHAT IS BEST FOR YOU

Legal vs Tax

Legal

 LLC  Inc.

Tax

 Sole proprietor  S Corporation  Partnership  Corporation

LEGAL STRUCTURES

LLC – Limited Liability Company

 Flexibility  No Franchise taxes  Most popular in LA

• Inc. – Incorporation

 Less Flexibility  Franchise Taxes  Less popular in LA

TAX - SOLE PROPRIETOR

Advantages

 Easiest  Only profit and loss reporting  No payroll returns necessary for owner

Disadvantages

 Self-Employment taxes  Greater scrutiny by IRS  Fewer retirement plan options

TAX - S CORPORATION

Advantages

 Simple to elect with IRS  Potential reduction of SE taxes  Less scrutiny by IRS  Additional retirement options

Disadvantages

 Additional returns to file

 Company returns  Payroll returns

 Increased administrative costs  Greater need for “set of books”

EXAMPLE

EXAMPLE

EXAMPLE

WHAT’S NEW – 2017 TCJA

2017 Tax Cuts and Job Act

 Reduced Rates – Corporate and Individual  Higher Standard Deductions  No More Personal Exemptions  Increased Child Tax Credits  State and Local Tax Deduction Limited  Enhanced Depreciation Deductions  Qualified Income Deduction

2017 TAX CUTS AND JOBS ACT

Brackets and Rates - 2017 Married Filing Joint Returns Taxable Income: Rates: $0 to $18,650 10% $18,651 to $75,900 15% $75,901 to $153,100 25% $153,101 to $233,350 28% $233,351 to $416,700 33% $416,701 to $470,700 35% $470,701and over 39.6% Brackets and Rates - 2018 Married Filing Joint Returns Taxable Income: Rates: $0 to $19,050 10% $19,051 to $77,400 12% $77,401 to $165,000 22% $165,001 to $315,000 24% $315,001 to $400,000 32% $400,001 to $600,000 35% $600,001 and over 37% These new rates will expire after 2025.

2017 TAX CUTS AND JOBS ACT

Brackets and Rates - 2017 Single Filers Taxable Income: Rates: $0 to $9,325 10% $9,326 to $37,950 15% $37,951 to $91,900 25% $91,901 to $191,650 28% $191,651 to $416,700 33% $416,701 to $418,400 35% $418,401and over 39.6% Brackets and Rates - 2018 Single Filers Taxable Income: Rates: $0 to $9,525 10% $9,526 to $38,700 12% $38,701 to $82,500 22% $82,501 to $157,500 24% $157,501 to $200,000 32% $200,001 to $500,000 35% $500,001 and over 37% These new rates will expire after 2025.

2017 TAX CUTS AND JOBS ACT

Standard Deductions

2018

Single or MFS $12,000 Married Filing Joint or QW $24,000 Head of Household $18,000 Additional standard deduction for a taxpayer age 65 or older, or blind: Single or Head of Household $1,300 Married Filing Joint or QW $1,600

The increased standard deduction expires after 2025.

Personal Exemptions

The deduction for personal exemptions is suspended for tax years 2018 through 2025.

2017

Single or MFS $6,350 Married Filing Joint or QW $12,700 Head of Household $9,350 Additional standard deduction for a taxpayer age 65 or older, or blind: Single or Head of Household $1,250 Married Filing Joint or QW $1,550

Personal Exemptions

The deduction is $4,050 per person. This amount is phased out when AGI is in excess of: Single $261,500 Married Filing Joint or QW $313,800 Head of Household $287,650 Married Filing Separate $156,900

2017 TAX CUTS AND JOBS ACT

Child Tax Credit

• The Act temporarily increases the child tax credit to $2,000 per qualified child

in 2018 ($1,000 for 2017).

• The refundable portion will increase to a maximum of $1,400 in 2018.
• The threshold at which the credit begins to phase-out will increase to $400,000

for married taxpayers filing a joint return ($110,000 for 2017) and $200,000 for single taxpayers ($75,000 for 2017).

• This provision expires for taxable years beginning after December 31, 2025.

2017 TAX CUTS AND JOBS ACT

Itemized Deductions

• Medical Expense Deduction Enhanced
• Threshold for the deduction is lowered to 7.5% of AGI for tax years 2017 & 2018.
• After 2018, the threshold increases to 10% of AGI for all taxpayers.
• This Provision expires after 2025.
• State and Local Taxes
• Beginning in 2018, the new law limits the annual itemized deduction for nonbusiness

state and local taxes to $10,000.

• $5,000 for married taxpayers filing separate returns.
• Includes amounts paid, in the aggregate, for state income taxes, property taxes

and sales taxes.

• The new limitation on taxes paid expires after 2025.

2017 TAX CUTS AND JOBS ACT

Corporate Tax Rate - 2018

• The new law establishes a 21% corporate tax rate.
• This Act makes the new rate permanent beginning in 2018.
• The prior corporate rates for 2017 ranged from 15% on the first $50,000 of

taxable income to a maximum marginal corporate rate of 39%.

2017 TAX CUTS AND JOBS ACT

Bonus Depreciation

• The new law increases the Bonus Depreciation Allowance from

50% to 100% for property placed in service after September 27, 2017 and before January 1, 2023.

Generally, after December 31, 2022 the new law calls for a

phase-down of the 100% allowance. Thus, the allowance will decrease by 20% per year until it is completely phased out for 2028.

• Under the new law, Bonus Depreciation is allowed for new

and used property.

2017 TAX CUTS AND JOBS ACT

Deduction for Qualified Business Income

• Effective for 2018, an individual taxpayer generally may deduct 20% of

qualified business income from a partnership, S Corporation or sole proprietorship.

• The deduction applies at the partner, shareholder or individual level.
• Income from service businesses (Attorneys, CPAs, Physicians, Photographers)

face additional hurdles and the deduction can be completely phased out.

• A service trade or business is defined as “any trade or business involving the

performance of services in the field of health, law, accounting, athletics, financial services or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more its employees or owners.

2017 TAX CUTS AND JOBS ACT

Deduction for Qualified Business Income

• Income thresholds and phase outs
• Single - Taxable income between $157,500 to $207,500
• Married Filing Joint - Taxable income between $315,000 to

$415,000

• A limitation based on wages paid by the business, or wages

paid plus a capital element is phased in when the individual taxpayer's taxable income exceeds certain thresholds.

• The deduction applies to tax years 2018 through 2025.

SALES AND USE TAXES

Sales Taxes - Defined Tangible Personal Property or Service? Nexus – Where is it taxable? Jurisdictions and Local Rates

SALES TAXES –DEFINED

Sales Taxes - The state of Louisiana and the parishes tax the sale

• f all “tangible personal property” unless exempted or excluded, as

well as those services that are specifically identified as taxable. La.

• Rev. Stat. §47:301, et seq.; La. Admin. Code §61:I.4303; Code of the

City of New Orleans §150-576(1)

Taxable Service - In Louisiana, unless a service is specifically

identified as subject to sales tax, then it is not taxable. It is very important that taxable and non-taxable services be separately stated

• n a customer invoice because failure to separate out non-taxable

transactions may result in the entire amount being subject to tax.

TANGIBLE PERSONAL PROPERTY OR SERVICE

R.S. §47:301(16)(a) defines tangible personal property as personal property that can be seen, weighed, measured, felt, touched, or is perceptible to the senses. R.S. §47:301(16)(d)(ii) Tangible personal property does not include: Work products presented in a tangible form that have worth because

• f the technical or professional skills of the seller. Work products are

considered non-taxable technical or professional services if the tangible personal property delivered to the client is insignificant in comparison to the services performed and there is a distinction between the value of the intangible content of the service and the tangible medium on which the service and the tangible medium on which it is transferred. These do not include items that have intrinsic value, like works of art, photographs, or videos.

NEXUS – DEFINED

Nexus - in general means a connection. The term nexus is used in tax

law to describe a situation in which a business has a "nexus" or tax presence in a particular state or states. Nexus describes the amount and degree of business activity that must be present before a state or parish can tax an entity's income or for taxes on sales within the state. If a taxpayer has nexus in a particular state or parish, the taxpayer must pay and collect/remit sales taxes in that state and pay income tax on income generated in that state.

WHAT CONSTITUTES NEXUS

For Sales Tax Purposes Nexus is determined for sales tax purposes more loosely than for income taxes. A few cases in which a business might have a sales tax nexus in a state: If the business has a physical location in the state. If there are resident employees working in the state. If the business has property (including intangible property) in the state. If there are employees who regularly solicit business in the state (i.e., salespeople).

RATES

Louisiana 4.45% Orleans 5.0% Jefferson 4.75%

• St. Tammany 4.75%

THANK YOU!

Debbie Moran, CPA

htbcpa.com 504.274.0200 dimoran@htbcpa.com