July/August 2011 Newsletter
Rick Ehrich and Steve Johnson to Retire From Olsen Thielen on August 31
Written by Newsletter Editor on August 18, 2011
Rick Ehrich has been with Olsen Thielen since 1977 and became a Principal in 1987. He has served on the Management Committee, chaired the Firm’s Quality Committee, served on the Board of the Firm’s two subsidiaries, committees of the AICPA, Minnesota Society of Certified Public Accountants and the Minnesota State Board of Accountancy.
Rick and his wife, Jan, intend to spend more time at their lake home, traveling, and volunteering in various interests.
Steve Johnson joined Olsen Thielen in 1977 and was elected Principal in 1995. He has served as the Principal-in-Charge of Olsen Thielen’s Accounting and Auditing Department and is the Past Chair of the TELERGEE Alliance Audit and Accounting Committee.
We thank Rick and Steve for their many years of service to Olsen Thielen and wish them the best of everything in their retirement.
Olsen Thielen continues to grow and currently has 18 principals and employs over 90 employees in our offices located in St. Paul and Minneapolis.
Minnesota Sales & Use Tax Change Effective June 30, 2011
Written by Cheryl Ellefson, CPA, MBT, CFP on August 18, 2011
Recently, Governor Dayton signed a bill that makes a number of changes to the state’s sales and use taxes. The bill includes provisions updating the state’s conformity with the Streamlined Sales and Use Tax Agreement (SSUTA) and changes the penalty for underpayment of the accelerated monthly payment requirements enacted in 2010 to help with the state’s cash flow.
Accelerated monthly payments for filers who reported $120,000 or more in the last fiscal year:
The bill provides an additional safe harbor for those businesses required to make accelerated payments that chose Method 2. Under the new law, the penalty for underpayment will not be imposed if the amount remitted by the 20th of the month equals the lesser of (1) 67% of the liability of the same month in the previous calendar year as the month in which the taxable event occurred, or (2) an amount equal to the liability of the month in which the taxable event occurred. This change is effective for sales and purchases made after June 30, 2011.
Contact Cheryl Ellefson, CPA, MBT, CFP at (651) 483-4521 with any questions regarding these changes.
Employers May See an Increase in Their Federal Unemployment Tax Act (FUTA) Rate for 2011
Written by Jilayne Leary on August 18, 2011
Employers must file Form 940, Employer’s Annual Federal Unemployment Tax Return, by January 31 for the preceding year. The determination of when FUTA tax deposits are due is based on the amount of quarterly tax liability. If FUTA tax is $500 or less in a quarter, the tax is carried forward to the next quarter until the cumulative tax is more than $500. At that point, a deposit is due for the quarter. For 4th quarter, employers must remit their 4th quarter liability plus any undeposited amounts from earlier quarters (even if total liability is under $500).
Prior to July 1, 2011, The Federal Unemployment Tax Act (FUTA) tax rate was 6.2% (6% permanent, .2% temporary surtax) on the first $7,000 of each employee’s wages, with a tax credit, generally, 5.4% for companies that pay their state unemployment tax on time. After considering the credit, a company would pay 0.8% on the first $7,000 of wages, for a maximum of $56 per employee.
Effective for wages paid beginning July 1, 2011, the .2% FUTA surtax expired, making the net FUTA tax rate drop from .8% to .6%. However, states can borrow funds from the federal government to pay unemployment benefits. Federal law reduces the 5.4% credit when a state has an outstanding federal loan for two years, thereby increasing the employer’s FUTA tax. The credit reduction starts at .3% and increases .3% each year the state has not repaid their federal loan.
Minnesota currently has an outstanding loan. Thus, if not repaid by November 10, 2011, the 5.4% FUTA credit will be reduced by .3% to 5.1%. The net FUTA rate for Minnesota employers with timely paid Minnesota unemployment tax will be .9%. Idaho, Illinois, Indiana, and Wisconsin along with many other states also face a reduced credit resulting in a net increase to the FUTA tax rate.
To further complicate things, it is possible that legislation could be enacted that would retroactively reinstate the FUTA surtax, effective July 1, 2011.
Capital Equipment Refund of Minnesota Sales Tax
Written by Cheryl Ellefson, CPA, MBT, CFP on August 18, 2011
Qualifying capital equipment for use in Minnesota is eligible for a refund of Minnesota and any local sales or use tax you paid.
Capital equipment means machinery and equipment purchased or leased, and used in Minnesota by the purchaser or lessee primarily for manufacturing, fabricating, mining, or refining tangible personal property to be sold ultimately at retail if the machinery and equipment are essential to the integrated production process.
You must pay sales or use tax when you buy or lease capital equipment and then apply for the refund.
To get a refund of sales or use tax paid, file a Capital Equipment Refund Claim, Form ST11. No more than two claim forms can be filed in a calendar year, but each claim can go back 3½ years.
This refund claim has been a legislative topic in the past and could be again as the state tries to balance its budget. Due to the possibility of repeal, file your claim(s) now. See Sales Tax Fact Sheet 103, Capital Equipment on the Minnesota Revenue website for further information and examples.
Sales Tax Corner
Written by Gerri Hoff, CPA on August 18, 2011
A lot of confusion exists concerning which services are taxable in Minnesota. The Minnesota Department of Revenue website has numerous fact sheets addressing specific types of services. In this article we are highlighting two of the fact sheets, #121 (Lawn and Garden Care, Tree/Bush Service, Landscaping) and #112 (Building Cleaning and Maintenance).
Fact Sheet 121: Taxable services include lawn mowing and trimming, raking, killing weeds, insects, rodents or fungi, reseeding lawns. Nontaxable services include cleaning or maintenance of an outdoor pond, snow shoveling or plowing, applying ice melt or sand to driveways, sidewalks or parking lots.
Fact Sheet 112 (applies to commercial/residential buildings as well as homes and apartments): Taxable services include building cleaning and maintenance (carpets, ducts, elevators, etc.), office cleaning, window washing, water removal, swimming pool/spa/hot tub cleaning/maintenance. Nontaxable services include repairs to real property, sewer and drain cleaning, painting and wallpapering, snow plowing and removal.
When invoiced by an independent contractor or another company and sales tax is not charged, the customer needs to pay use tax for that service on their next sales and use tax return.
Please contact Gerri Hoff, CPA, or Cheryl Ellefson, CPA, MBT, CFP, at (651) 483-4521 with questions.
IRS Increases Standard Mileage Rate
Written by Newsletter Editor on August 18, 2011
On June 23, 2011, the Internal Revenue Service announced an increase in the optional standard mileage rate for the final six months of 2011. The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011 through December 31, 2011.
The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.
What Do You Need to Know About Inherited IRAs and What Distribution Options Are Available?
Written by Joel Grundmeier, CPA, MST, CFP on August 18, 2011
Do you have an IRA? Are you named as beneficiary of an IRA owned by a parent, spouse, or other family member? If the answer to either of these questions is yes, here are some important rules you will need to know.
General Rules Relating to Inherited IRAs:
- If the deceased account owner was over age 70½, make sure the full amount of their minimum required distribution (MRD) for the year of death was taken out of the IRA. If less than the required amount was taken, the shortfall must be distributed to the beneficiaries of the IRA on or before December 31st of that same year.
- Beneficiaries of an inherited IRA are required to begin taking annual distributions on or before December 31st of the year following the account owner’s death. The amount each beneficiary must take out of the IRA each year is determined by dividing the prior year end account value by their life expectancy as determined by IRS tables. You can choose to take more than the minimum amount, but never less.
- Distributions from an inherited IRA are taxed to the beneficiary in the year in which the distribution is received.
If You are a Surviving Spouse:
- If you are the surviving spouse of the deceased account owner, you may have an additional option. You may elect to treat the IRA as your own. Rules for distributions and naming beneficiaries will be the same as if you were the original account owner.
- Generally, treating the IRA as your own gives you the most flexibility and is the best option. However, taking the account as an inherited IRA may be better in certain cases, such as if you are under age 59½ and potentially need immediate access to this money.
- The option to treat the account as your own is not available unless you are the sole beneficiary of the IRA. However, with timely planning, this can often be corrected and the option may be restored. Speak with your tax advisor as soon as possible if you are in this situation.
What if No Beneficiaries are Named?
If you have not named beneficiaries for your IRA, then the IRA goes to your estate and the IRA is distributed in accordance with the provisions in your Will. In this case, the heirs to your estate cannot take distributions over their own lives. Instead the maximum distribution period depends on your attained age at the end of the year of death.
- If you die before April 1 of the year following age 70½, the IRA must be completely distributed within five years.
- If you die after April 1 of the year following age 70½, the IRA must be distributed over the remaining life expectancy of the decedent. For example, if the decedent would have attained age 80 during the year of death, the IRS says life expectancy at that time is 10.2. In this situation, the beneficiary must begin taking distributions in the year following the year of death in an amount at least equal to the account value at the end of the prior year divided by 9.2. The MRD for each following year is calculated in the same way by reducing the distribution period by 1 from the previous year.
No Rollovers are Allowed.
Inherited IRAs cannot be rolled over. Any distributions will be taxed to you when received. If you want to set up an inherited IRA and spread the distributions over a number of years, you must do a direct transfer.
Multiple Beneficiaries.
If you’re sharing inherited IRA assets with other beneficiaries, you should set up your own Inherited IRA for your portion of the Inherited IRA assets by December 31 of the year following the IRA owner’s date of death. See your tax or legal advisor with regard to your situation. Any beneficiaries who do not separate their inherited IRA assets by the cut-off date (December 31) may be required to base their minimum required distributions (MRDs) on the age of the oldest beneficiary on the account. In some instances, this calculation can accelerate the MRDs from your account.
Trust as a Beneficiary.
There are special rules if a trust is named as the beneficiary of an IRA. The available distribution period may be reduced or eliminated entirely depending on the terms and beneficiaries of the trust. If you want to name a trust as beneficiary of your IRA, be sure to consult your legal and tax advisors first.
Disclaimers.
Are you the designated beneficiary on an IRA that you want to go to someone else? You have the ability to disclaim your interest in the IRA within nine months of the IRA owner’s death. You cannot choose who will receive the disclaimed interest. Instead the disclaimed interest usually will go to the next eligible beneficiary. Make sure you know who will receive the property before making any disclaimers. Qualified disclaimers must meet both IRS and state requirements, so it is important to consult your legal advisor.
The IRS rules relating to IRAs are extremely complex. If you don’t follow the IRS regulations exactly, you or your beneficiaries could end up paying significant penalties and taxes. Review the primary and contingent beneficiary designations on your IRA accounts and make sure they are what you want. If you will inherit an IRA, understand your options and make sure you don’t miss any required deadlines. In either case, it is important to discuss these issues with your tax advisor.
If you have questions about inherited IRAs you may contact Joel Grundmeier, CPA, MST, CFP®, or Mike Breza, CPA, MBT at (651) 483-4521.
Money Matters
Written by Newsletter Editor on August 18, 2011
- The first coin minted in the United States was a silver dollar. It was issued on October 15, 1794.
- Assuming that each fold neatly overlaps its opposite side, a dollar bill can be folded only six times–seven if put into a vise.
- During the American Revolution, inflation was so great that the price of corn rose 10,000 percent, the price of wheat 14,000 percent, the price of flour 15,000 percent, and the price of beef 33,000 percent.
- A quarter has 119 grooves on its circumference. A dime has one less.
- In 1915 the average annual family income in the United States was $687 a year.
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July/August 2011 Newsletter
