Sales Tax in Florida Can Be Complex
Think You Understand Florida Sales Tax? Confusion can be as close as your next trip to the grocery store.
While many think it’s a simple as what you can eat and what you can’t — this is just not true.
Let’s review some examples.
Plain, drinking water is exempt from sales tax, but if it’s carbonated or flavored, it’s subject to Florida sales tax. Natural fruit juice with 100% fruit is exempt, but the moment it wears the labels “drink,” “ade,” “beverage,” “cocktail,” or “flavored,” it’s taxable.
Cookies, muffins, bagels and other bakery food items, when sold by bakeries, pastry shops, or similar establishments, where the “seller” does not have an eating facility — the goodies are exempt from sales tax. If the Seller has an eating facility, then the baked goods are taxable, unless the products are sold for consumption off premises. To that end, here’s what the Department’s Form DR-46NT actually says “Bakery products sold in quantities of five (5) or fewer are presumed to be TAXABLE.”
If your business deals with items subject to Florida sales tax, or you are not sure if your products or services are subject to Florida sales tax, it’s important to consult an expert. Not knowing can cost you as a merchant. A business is responsible for sales tax even when they fail to collect it from their customers. This means your business could be held responsible for the sales taxes it failed to collect on items it should have taxed but failed too due to lack of knowledge.
Not able to itemize every year? Think about bunching deductions in the years you can itemize.
If you have qualified itemized deductions that are NOT equal to the standard deduction in one year, you might be better off pushing deductions to the next year and itemizing every other year.
For example, if you have significant unreimbursed medical expenses for 2023, it may make sense to accelerate out-of-pockets costs for planned elective procedures or medical equipment into this year to bring you over the standard deduction amount. Keep in mind, you can only deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI). So, if your AGI is $50,000, the first $3,750 of qualified expenses (7.5% of $50,000) don’t count.
Bunching charitable deductions can be a tax-smart way to help accomplish your philanthropic goals.
One way to achieve this is through the use of donor-advised funds which are established with qualified public charities. As the donor, you transfer money, or appreciated stock, to the fund and receive a deduction in the year the charitable donation is made.
For example, if you plan to give $3,000 per year to charity over the next five years, but that annual amount is not enough for you to itemize and take a deduction for your charitable gifts, you could donate the full $15,000 (5 X $3,000) in 2023. That would enable you to itemize this year’s tax return and take the standard deduction in the remaining years (2024 through 2027). The contributions within your donor-advised fund could still be disbursed to the charity on an annual basis, over the five-year period. However, it’s important to understand that contributions to donor-advised funds are irrevocable.
Now Is The Time To Verify Information Needed for 1099-MISC’s and 1099-NEC’s
Businesses that pay $600 or more for services or rents during the year should review vendor information to make sure they have what they need to prepare the required forms at the end of the year.
Do you have the correct legal name for each person or business along with their tax ID number, and address on file? If not, November is the perfect time to update your records.
The best way to collect this information is to ask all vendors and service providers to complete IRS form W-9 and return it to your business.
Vendors and service providers are required to provide this information by law, so if someone refuses just hold their next payment until they provide what is required.
Estate Planning Watch Out For the Cliff
Watch out for the coming estate tax cliff.
The Tax Cuts and Jobs Act increased the estate tax exemption amount through 2025. After 2025 the unified credit drops from $12.92 million per individual for 2023 to a figure around $7 million, depending on inflation adjustments, in 2026.
Taxpayers concerned about the drop in the unified credit may be considering making sizable gifts in 2023, 2024 and 2025. The IRS has assured taxpayers that such gifts, made under the current unified credit, will not be clawed back into the estate if the unified credit is eventually reduced.
Note: NEVER gift money or property you might need. Once a gift is made you cannot demand the return of the funds or property.
Charitable Contributions & Your 2023 Taxes
The deduction of charitable contributions by non-itemizers has expired along with the enhanced deduction of itemized charitable contributions. However, considering charitable contributions for the year remains a viable tax strategy for itemizers — including bunching strategies in which charitable contributions are bunched into every other year in order to exceed the standard deduction in the year that charitable deductions are claimed.
Qualified charitable distributions from IRAs are available for taxpayers age 70 ½ or older up to $100,000 per year. This removes the distribution from adjusted gross income.
A new law change also permits a one-time distribution of up to $50,000 of the qualified charitable distribution to a dual beneficiary trust, such as a charitable remainder trust.
The annual gift tax exclusion is $17,000 for 2023.
FinCEN Small Business Beneficial Ownership Information Reporting Compliance Guide
FinCEN Publishes Small Business Beneficial Ownership Information Reporting Compliance Guide: The Financial Crimes Enforcement Network (FinCEN) has published a Small Entity Compliance Guide to help small businesses satisfy the new beneficial ownership information (BOI) reporting rules.
The Corporate Transparency Act (CTA) established uniform BOI reporting requirements for certain corporations, limited liability companies, and other similar entities created, or registered to do business, in the U.S. FinCEN issued final regulations implementing the CTA’s BOI reporting requirements in September 2022, which go into effect on 1/1/24.
The new Small Entity Compliance Guide is intended to help businesses determine if they are required to report their BOI to FinCEN under these final rules.
The guide addresses some core issues, including each of the BOI reporting rule’s provisions, answers to key questions, and interactive checklists, infographics, and other tools aimed at helping businesses comply. FinCEN also announced that guidance on how to submit BOI reports will be provided soon.
The FinCEN news release and link to the new guide can be found at www.fincen.gov/news/news-releases/fincen-issues-compliance-guide-help-small-businesses-report-beneficial-ownership
Tax planning is one of the best ways we know to reduce your tax bill, and at RMS Accounting we take a proactive approach to helping clients pay the lowest amount of tax allowed by law.
We do this through a two-step process. Step 1 requires us to keep up to date with the latest changes to the tax laws, and tax savings strategies. Step 2 is all about you our clients, it requires us to keep you updated on just what steps you can take to ensure that you can take advantage of ever tax saving strategy that will help you.
Since everyone’s situation is different the only way, we can assist you is to be available when you have questions and prior to year-end to review your situation with you, so that you can take the steps required to maximize your tax savings.
That is why every tax preparation engagement includes year-round access to our tax professionals and year-end tax planning, free when we have prepared your tax return for the prior year.
Below are links to this year’s tax planning letter which is mailed to all our clients along with links to planning worksheets for individuals and business. You can use these documents to help you get the most out of your tax planning consultation.
Have You Been Ghosted By Some of Your Retirement Funds?
Losing track of retirement funds is a common problem in today’s world of corporate consolidations and job switching by employees.
As of May 2023, there were approximately 29.2 million forgotten 401k accounts in the United States that held approximately $1.65 trillion in assets. The recent increase in job switching, has increased the number of forgotten 401ks (which has grown by more than 20% since May 2021).
Here are some ways to locate and reclaim lost retirement accounts:
- Check with past employers. If you’ve changed jobs throughout your career, it’s important to follow up with past employers to make sure you didn’t leave any money behind.
- Search unclaimed property databases. Sometimes people lose track of their retirement savings when they move and forget to notify past employers of their new address. When an employer or financial institution is unable to reach an accountholder, it may turn over the account to the state’s unclaimed property office.
- Check the Department of Labor (DOL) abandoned plan database. If your past employer’s plan was terminated, the DOL’s Employee Benefits Security Administration consolidates information about unclaimed retirement benefits and makes it easy to track down missing funds.
- Contact the Pension Benefit Guaranty Corporation (PBGC). The PBGC can be a great resource if you lost track of a defined benefit pension plan at a previous employer. Visit pbgc.gov for more information.
- Track down forgotten IRAs. If you think you may have abandoned an IRA along the way, take inventory of past bank and investment account statements for any evidence of the account. You can also reach out directly to any financial institutions you’ve worked with in the past to inquire about any inactive or dormant IRAs associated with your name.
Remember it’s your money and while it might take a little work to find it and reclaim it, it belongs to you. You would be surprised at the size of some of the accounts our clients have been able to locate after putting in just a little effort.
Calculating Reasonable Compensation
Since reasonable compensation is important for S-Corporate Owners here is a list of some of the information that should be considered when calculating it.
What would you need to pay someone else to do what you do? Which leads to the question just what do you do as many business owners where a lot of hats and each of those hats can have a different value. For example, if your 40-hour week include the following activities the value you of each needs to be considered. 4 hours shopping for supplies, 6 hours making deliveries, 10 hours bookkeeping and administrative activities, 15 hours of sales activities and 5 hours of executive management activities the weekly amount of reasonable compensation might be calculated as follows.
Remember that every business owner’s job is unique and the time spent for each activity will vary along with the applicable rate. Applicable rate should be those paid by similar business of similar sizes. What is reasonable for a pizza delivery business owner would not be anywhere near what is reasonable for an attorney or doctor.
Teachers – Out of Pocket Classroom Expenses Are Tax Deductible
Teachers and other educators can deduct up to $300 of out-of-pocket classroom expenses for 2023 when it comes time to file their federal income tax return.
An eligible educator can deduct up to $300 of qualifying expenses paid during the year. Two eligible educators that are married and filing a joint tax return can each deduct $300 of qualifying expenses paid during the year for a total deduction of up to $600 on a joint return.
Educators can claim this deduction even if they take the standard deduction. Eligible educators include anyone who is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide who worked in a school for at least 900 hours during the school year. Both public and private school educators qualify.
Educators can deduct the unreimbursed cost of:
- Books, supplies, and other materials used in the classroom
- Equipment, including computer equipment, software, and services
- COVID-19 protective items to stop the spread of the disease in the classroom. This includes face masks; disinfectant for use against COVID-19; hand soap; hand sanitizer; disposable gloves; tape, paint, or chalk to guide social distancing; physical barriers, such as clear plexiglass; air purifiers; and other items recommended by the Centers for Disease Control and Prevention
- Professional development courses related to the curriculum they teach or the students they teach. But the IRS cautions that, for these expenses, it may be more beneficial to claim another educational tax benefit, especially the lifetime learning credit. For details, see IRS Publication 970, Tax Benefits for Education, particularly Chapter 3