Generally income tax returns are constructed to report business income, and then subtract cost of sales (the cost of producing or purchasing the product being sold) and the expenses of carrying on the business (things like employee wages, rent, and office supplies). There is an overriding provision for businesses that sell cannabis, however. Even though cannabis is legal in certain states, Section 280E of the federal income tax code states that no deduction is allowed for an amount paid or incurred in carrying on a business if the business consists of trafficking in controlled substances. Since marijuana is on the list of controlled substances, no deductions can be taken for the costs of carrying on the business of marijuana sales. Because of this, income tax represents a significant cost for these businesses.
Despite approval of three cannabis bills, including adult use legalization, following a four hour hearing held before the joint session of the New Jersey Senate and Assembly Budget and Appropriation Committees on November 26, 2018, it appears unlikely that marijuana legislation will be voted upon in 2018. December 17, 2018 is the latest voting day of the legislative year and work still remains on gaining consensus on key issues in the bills including the tax rate, expungements and whether the proposed Cannabis Regulatory Commission would be a full-time commission. Work also remains in ensuring the number of votes needed for passage.
Beginning on October 29, 2018 employees in New Jersey may earn up to 40 hours of paid sick leave per year. A benefit year can be defined by the employer and cannot be changed without the approval of the Department of Labor. All New Jersey employers, except governments, are subject to this law. Employers who already have policies in place should confirm that they are in compliance with the new law.
Therese Connell, one of the firm’s Partners and Director of its Estate and Trust department, marks 25 years with the firm this year. She has decided to move to part-time status at Capaldi Reynolds & Pelosi effective August 31, 2018.
Therese has served in her current role since 1999, where she has been integral in managing firm software and internal processes. She joined the Firm in 1993, after working in another local accounting firm. Therese graduated from Immaculata College with a degree in Home Economics.
During her tenure with the firm, she developed the estate and trust work of the Firm into one of its key divisions. Therese is a mentor to a number of the Firm’s professionals and a trusted advisor to many of the Firm’s clients and business partners. She also plays a critical role in helping the Firm develop and maintain its information technology systems as well as relationships with tax and information systems vendors.
“In the 25 years of her tenure with Capaldi Reynolds & Pelosi, Tese has attained the status as one of the area’s premier experts in her field. Her incredible knowledge base, dedication to excellence, and service philosophy have really made an impact,” said Donna Buzby, one of the Managing Partners of Capaldi Reynolds & Pelosi. “Tese is an inspiration to everyone here, and I hope she continues to work with us for many years.”
Capaldi Reynolds & Pelosi today announced that Frank Pelosi, one of the Firm’s Managing Partners and Director of Litigation Support, has decided to retire effective August 31, 2018.
Frank has served in his current role at the Firm since 2000, where he helped oversee its most critical operations and management processes. He joined the Firm in 1971 after graduating from Mount Saint Mary’s College with a degree in Business Administration. He received his MBA from Monmouth University in 1980.
On June 21 of this year, the Supreme Court reached a decision in the South Dakota v. Wayfair case which could have a far-reaching impact on clients with sales and operations in multiple states. Prior to the ruling, case law dating back 26 years to the National Bellas Hess Inc. v. Department of Revenue of Illinois and Quill Corp. v. North Dakota, established the rules for “substantial nexus” used to determine whether or not a business had an obligation to collect and pay sales and use tax to a state taxing authority. The rule, as originally set forth and upheld, called for a seller to have a physical presence (meaning either a physical structure such as a building or warehouse, or a human presence like a sales representative) in order to establish nexus within that state. Under this guideline, a seller with substantial sales, yet no physical presence, in a given state was not required to remit sales tax on goods sold, creating a substantial missed revenue opportunity for state taxing authorities.
The Tax Cuts & Jobs Act (TJCA) repealed the deduction for business entertainment beginning in 2018. This includes expenditures for taking clients to sporting events and shows, and paying for season tickets for various sporting events. Generally, any dues for social clubs such as country clubs or athletic clubs will also be non-deductible.
Most business-related meals will be 50% deductible. If no business is discussed, the meal is not deductible for tax purposes and should be classified as entertainment.
Deductions will be permissible for sponsorship payments, net of the fair market value of any meals and entertainment, as well as for payments for professional dues and meetings such as civic organizations, trade associations and professional organizations.
Proper classification of the above-cited expenditures will be important for proper tax reporting. Accordingly, it is essential to have your company’s internal accounting set up appropriately. Please contact us if you would like assistance in identifying and classifying these expenses to treat them correctly on your tax return.
By Terri L. Marakos, CPA
The staff of Capaldi, Reynolds & Pelosi (CRP) is often found crunching numbers and burning the midnight oil, especially during the 1st quarter of the year. Sometimes, however, they do come up for air and when they do, they get involved in some very worthwhile ventures in the community. Several members serve on boards of civic organizations, participate in local events, and even offer presentations to various groups. Here are some of our activities outside the office.
New Jersey Health Insurance Mandate to be effective in 2019: In response to the repeal of the Affordable Care Act’s (ACA) federal health insurance mandate that will become effective in 2019, legislation was signed on May 30, 2018 by New Jersey Gov. Phil Murphy whereby New Jersey will impose a similar mandate effective in taxable years beginning January 1, 2019. The New Jersey law requires all state residents to have health insurance or pay a penalty. The penalty will be calculated based upon the current federal formula, which is 2.5% of income or $695 per adult taxpayer and $347 per child, whichever is greater. A family’s maximum penalty is $2,085. The penalty is designed to increase each year that someone is not covered, but cannot exceed the price of a lower-cost bronze-level plan on New Jersey’s ACA marketplace. The cost of such a plan averaged just under $3,300 in 2017.
New Jersey is the second state to enact a health insurance mandate. In 2006, Massachusetts was the first state to adopt an individual mandate. Other states are currently developing similar legislation.
By Terri L. Marakos, CPA