Month: March 2022

This article will focus on the developing issue related to the imposition of income taxes by cities and local governments.

Businesses that operate in the city of San Francisco must register in the city and pay a license fee. Moreover, businesses may be subjected to three additional taxes: the San Francisco Gross Receipts tax, the Homeless Gross Receipts Tax, and the Commercial Rent Tax. While these types of taxes are common in several large cities, such as New York City and Philadelphia, smaller cities in Ohio, Colorado, and Michigan impose similar income and gross receipts taxes. Additionally, local municipalities and towns are reviewing their charters to determine if they can enact income, gross receipts, and license taxes to raise revenue.

In San Francisco, the nexus standards include maintaining a fixed place of business within the city; performing any work, including solicitation, within the city for all or part of any seven days during the calendar year; or generating more than $500,000 in San Francisco-sourced gross receipts during the calendar year. Except in certain limited circumstances, tax filing must be made online.

With the recent increase in the sale of goods and services provided through the online-virtual economy, businesses will have to consider the potential consequences of city taxes. For example, a taxpayer may be subject to the New York City corporate income tax based upon sales to customers located in the city. New York City takes a market-based approach to sourcing sales in its jurisdiction. As a result, a service provider located outside New York City may be subject to the City’s corporate income tax because it has a customer located in New York City that receives a benefit from the out-of-state service provider.

The city of Philadelphia imposes the Business Income and Receipts Tax (BIRT). Every individual, partnership, limited liability company, and corporation is subject to tax. The tax has two components comprised of an income tax and gross receipts base. The tax is generally imposed on businesses that have a location in Philadelphia, however, the seller of software and SaaS may be subject to the BIRT if they have customers that receive a benefit in Philadelphia.

It should also be noted that Ohio has over 600 city and municipal jurisdictions that impose income taxes. Moreover, Michigan has almost 20 cities that impose an income tax and Colorado has five cities that impose similar taxes.

Based upon state and local jurisdictions increasing need for tax revenue, local income taxes and fees will be an emerging issue for businesses.

If you need assistance in determining if your business’s expansion is potentially liable for local taxes, please contact an advisor in our tax practice.

If you have any questions regarding the information in today’s blog post, contact your trusted advisor at RVG & Company, today! (954) 233-1767.

With the benefit of tax-free compounded growth offered by Roth IRAs, contributions made to a child’s IRA can have significant growth.

Compounded Growth

With the benefit of tax-free compounded growth offered by Roth IRAs, contributions made to a child’s IRA can have significant growth. For example, assuming an 8% expected rate of return, the investments made by age 19 will grow to FORTY times its value by the time they reach 67 (current full retirement age). For example, $2,500 invested before high school graduation will be $100,000 at retirement. This exponential growth is known as compounding.

Compounding interest and growth occurs when interest and growth is earned on the initial contribution of principal and the growth of the investment over time. Allowing more time for the investment to grow, will allow for more substantial growth to occur. By starting to save prior to graduating from high school, the investment will have almost fifty years of compounding growth until your child’s retirement.

Contributions to Roth IRA’s must be made with after-tax contributions and any earnings are tax-free if the rules are followed.

How to Generate Income for Your Child

Any child, regardless of age, can contribute to an IRA provided they have earned income; others can contribute too, if those amounts do not exceed the amount of the child’s earned income. For 2021 and 2022, the maximum a child can contribute to an IRA (either traditional or Roth) is the lesser of $6,000 or their taxable earnings for the year. For example, if your child earns $3,000 this year, they could contribute up to $3,000 to an IRA. However, if your child earns $10,000, they could only contribute $6,000, which is the maximum contribution. If your child has no earnings, they cannot contribute at all.

It should be noted that your child must have earned income during the year for which a contribution is made. Money from an allowance or investment income does not qualify as earned income and thus cannot be used towards contributions.

Ideally, your child will receive a W-2 or Form 1099 for work performed to document their earned income. But of course, that does not always occur with entrepreneurial jobs such as babysitting, yard work, dog-walking, and other common youth-oriented jobs. It is recommended to keep receipts or other documentation. These should include the following:

• Type of work
• When the work was performed
• For whom the work was performed
• The amount your child was paid

As noted above, earned income cannot be an allowance (even if the child does chores for it) or a cash gift given directly to the child. Still, although allowances are not allowed considered earned income, you may be able to pay your child for work done around the house, provided it is legitimate, and the pay is at a market rate. (For example, $1,000 for two hours of babysitting, would be unreasonable.)

It helps if the child does similar work for outsiders—doesn’t just mow the family’s lawn, but they mow the lawns of others in the neighborhood. Or, if you have your own business, you can employ your child to perform age-appropriate tasks for reasonable wages.

If you have any questions regarding 1099 Requirements or other obligations, please contact RVG & Company, today! (954) 233-1767.