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Berdon Advsiors 09.08.2014 | Practice Made Perfect

 

MCTMT Amended for 2015 —Resident Partners Must Pay Tax on Their Own

By Wayne Berkowitz, CPA, J.D., LL.M.

Effective for tax years beginning on or after January 1, 2015, law and other partnerships can only make Metropolitan Commuter Metropolitan Commuter Transportation Mobility Tax (MCTMT) payments on behalf of nonresident partners.  Resident partners must now pay the MCTMT on their own behalf.

Individuals, including partners in partnerships and members of LLCs that are treated as partnerships for income tax purposes, who have net earnings from self-employment allocated to the Metropolitan Commuter Transportation District[1] (MCTD) are subject to the MCTMT at a rate of 0.34%.  For tax years beginning prior to January 1, 2015, partnerships were permitted to file a group return on behalf of both their New York resident and nonresident partners and pay the MCTMT on behalf of the partners that elected to be included in the group. 

Fortunately, the new rules have made this somewhat simpler for resident taxpayers to comply.  Beginning with the MCTMT payment due on April 15, 2015, resident partners will submit the estimated MCTMT payments along with their Income Tax estimates on Form IT-2105.  Correspondingly, the remaining three estimates will also be filed and paid with the Income Tax on June 15, September 15 and January 15.  The tax will be reported and reconciled on the annual Personal Income Tax Return.  Note that nonresidents that do not elect to be included in a partnership’s group return will follow the same procedures.

Group returns are still permitted to be filed on behalf of the qualifying nonresident electing partners.  If an election is made, the partner need not file and/or pay the MCTMT on his own behalf.  Although not entirely clear at this time, it appears that nonresident taxpayers participating in a group return must do so for both Income Tax and MCTMT purposes.   Estimated payments for the group returns will be made combined to include both the Income Tax and MCTMT.  Due dates of the estimates will be April 15, June 15, September 15, and January 15.

Law firms must notify resident partners of these new requirements and must seek elections from nonresident partners who wish to participate in group returns.

Questions? Contact your Berdon advisor or Wayne Berkowitz at 212.331.7465 | wberkowitz@berdonllp.com.


[1] The MCTD includes New York City [the counties of New York (Manhattan), Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island)], and the counties of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester.

 

Review 401(k) Plans before Year End

By Marianne Reidy, CPA

With the end of the year approaching, it’s an ideal moment to review your 401(k) plans, implement any required changes, and focus on ways to keep costs down.  Plan sponsors have a fiduciary duty to safeguard employees’ retirement accounts and a periodic review of your plans is a vital, required, and revealing exercise.

This is the time to benchmark all service providers, investments, and plan costs. Service providers should be monitored through an RFP process — ideally every three to five years — to ensure that the services received and fees paid are reasonable and meet the needs of the plan.  You may find that the plan fees are not appropriate for the size of the plan’s assets.  

Obtaining an independent review of the proper allocation of investment options for the employees as well as fees can be very valuable and imperative to comply with your fiduciary duties.  JoanAnn Natola, Co-Managing Partner of Element Financial Group notes, “Plan investment options should be benchmarked at least on an annual basis against performance, overall objectives, and the goals of the plan as outlined in the Investment Policy Statements.”  Natola adds that options that are not meeting those standards should be removed.  “The Department of Labor (DOL) has made it clear that plan investment operations will not be evaluated by performance results, but by the processes they employ in achieving those results,” says Natola.

A rebounding economy can impact your plan in a number of ways.  If the firm hired new employees during the year, determine the number of participant’s changes that were made.  You may find that the plan is required to be audited if it has reached certain thresholds — even if that threshold is exceeded by one participant. Also, if the firm decides to match employee contributions, you will need to gauge if the match is in compliance with the plan document. You may have to satisfy a number of questions.  Does the match have to be funded monthly or annually at the end of the year? Have employees been properly notified of the employer match?

It is prudent to make sure that you know where all records are stored.   Should the DOL need to review any of your records, you want to be positioned to find them easily and promptly.  For the sake of security and efficiency, more than one responsible person should know where the records are maintained.

Questions? Contact your Berdon advisor or Marianne Reidy at 212.331.7449| mreidy@berdonllp.com

 

Sales and Use Tax Audits — Be Prepared

By Les Rosenbaum

Sales and use tax audits don’t necessarily pop up when you are ready and the best defense is being prepared.  The problem is that the rules are not always clear and so it is difficult to know when your firm is liable.  Case in point: Law firms know that out–of–state vendors are not required to collect New York State and City sales tax and that the firm must pay the tax for office supplies, office furniture, fixtures, and equipment purchased from these vendors.  The wider picture, however, is not so black and white.

To help you be better prepared when the auditor comes around, here is an outline of what you can expect.

Period of the Audit 

Generally, the audit will cover three years from the date the sales tax return was filed.  If no return was filed, there is no statute of limitations and the audit period could be for the entire existence of the firm.  However, New York State, as a matter of policy, limits the audit to six years.

Firm Income

Legal services in New York are not subject to sales or use tax.  Any client disbursements billed that are incidental to the provision of legal services are also not subject to sales or use tax.  However, in Connecticut, lobbying or consulting services for the purpose of influencing any legislative action are taxable.

Fixed Asset Purchases

In most cases, the state will scrutinize all purchases made during the audit period by reviewing invoices, contracts, and leases.  Areas of possible exposure include leasehold improvements and out-of-state purchases of items treated as fixed assets, such as furniture and fixtures and major computer hardware, software and other information technology services that are capitalized. 

Recurring Expense Purchases

A review of recurring expense purchases is commonly done on a test basis. The firm has the right to protest audit results done on this basis if the test results are not indicative of the entire audit period.  Areas of potential exposure include purchases of computer hardware and software that are expensed, office supplies, books and periodicals, and taxable information services such as abstracts of title and risk management analysis reports.

Software purchases have their own peculiar rules. Over the counter software purchases are subject to sales and use tax while software that is custom designed specifically for a firm is not. To complicate matters, when you purchase over the counter software (taxable) that is then customized for your firm (not taxable), the vendor must separately state the charges for the custom work or the entire charge will be taxed.

Documentation Required During the Audit

If the firm has made any leasehold improvements, the state will want to see the contract with the contractor, as well as subcontractor invoices and a description of the project.  For periodicals, the state will want to review the invoice with details on the length of the subscription and may also want to see a hard copy of the publication.  Employee purchase reimbursements must be backed up by a copy of the original invoice and not just credit card receipts.

A sales and use tax audit can be a grueling experience and advance preparation can help you start off on firmer footing.  When that time comes, it is best to proceed with the advice of your financial advisor who can guide you through the process with greater confidence.

Questions?  Contact your Berdon advisor or Les Rosenbaum at 212.699.6703 | lrosenbaum@berdonllp.com