April 9, 2024 | TaxConnections

09 Apr 2024

How Is Software As A Service (SaaS) Treated Under State Tax Laws?

A very important and often misunderstood area in the sales tax arena is the taxability of cloud-computing, cloud-based services, etc., collectively often referred to as Software-as-a-Service (or SaaS). The moniker alone is enough to start the state tax conversation down an interesting path.

The Basics

When we work with clients to determine how something should be taxed, we start with a few basic questions and then work from there.

Has nexus has been created?
This includes looking at both the physical presence as well as an economic presence. Following the U.S. Supreme Court’s June 2018 ruling in South Dakota v. Wayfair, many states enacted economic nexus statutes which require sellers to collect and remit sales tax in those states based on sales or transactional thresholds. In this process we also look at when nexus was created based on physical presence or economic nexus.

Is the product taxable?
Once nexus is established, the sale of tangible personal property by a retailer to a customer in a given state is generally taxable. We start there, and then review the transaction to see if there are any exemptions that would cause the sale of the property to not be taxable.

Written by Monika Miles | Posted in Software As A Service

09 Apr 2024

Biden Administration Wants To Increase Your Taxes For 2025

If you are wondering if President Biden is proposing tax increases, look no further than the General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals.

According to PWC “President Joe Biden on March 11 sent Congress a fiscal year (FY) 2025 budget that proposes to increase taxes by nearly $5 trillion for corporations and for individuals with incomes above $400,000. Many of the president’s tax proposals — including a proposal to increase the corporate tax rate to 28% and impose a 25% minimum tax on certain high-income individuals – were included in President Biden’s previous budgets. New tax proposals in the FY 2025 budget include measures to increase the recently enacted corporate alternative minimum tax rate from 15% to 21% and to deny business deductions for employee compensation above $1 million.”

Look no further than the Table Of Contents of the Biden Administration Revenue Proposals to see a number of tax increase proposals that include:

Raise the Corporate Income Tax Rate To 28%
Increase The Corporate Alternative Minimum Tax Rate To 21%
Increase The Excise Tax Rate On Repurchase Of Corporate Stock
Tax Corporate Distributions As Dividends
Limit Tax Avoidance Through Inappropriate Leveraging Of Parties To Divisive Reorganizations
Read More

Written by TaxConnections Admin | Posted in Tax Increases

09 Apr 2024

Foreign Self-Employment Income: A US Expat’s Guide

Navigating the intricate world of expat taxes presents unique challenges and reporting obligations for self-employed U.S. citizens living abroad. Understanding the nuances of foreign income, tax treaties, and self-employment taxes is crucial for maintaining compliance with the IRS while optimizing financial health.

WHAT CONSTITUTES FOREIGN SELF-EMPLOYMENT INCOME?

Foreign self-employment income refers to the income earned by self-employed individuals who work outside of the United States. The IRS defines self-employment income as any income earned through a trade or business when you are a sole proprietor or a member of a partnership, and it includes income earned from side gigs or part-time businesses. Self-employment income is subject to self-employment taxes, which include Social Security and Medicare taxes, and self-employed individuals are required to pay quarterly estimated taxes in addition to filing an annual return.

WHAT IS THE THRESHOLD FOR REPORTING FOREIGN SELF-EMPLOYMENT INCOME?

If your net earnings from self-employment exceed $400, you are required to report this income on a US tax return. This income threshold applies to all self-employed individuals, including those working abroad, and encompasses your worldwide income.

WHAT IS THE U.S. SELF-EMPLOYMENT TAX RATE?

For the tax year 2023, US expats who are self-employed need to be aware of the self-employment tax rate that applies to their net earnings. The Internal Revenue Service (IRS) outlines that the total self-employment tax rate is composed of two parts: a 12.4% contribution towards Social Security and an additional 2.9% that goes towards Medicare. Collectively, this brings the self-employment tax rate to approximately 15.3% of your net profit.