We believe in creating a strong working relationship with our clients to determine their specific accounting and compliance needs.

Should you Open a Second Location?

Business is going so well that you’re thinking about adding another location. Before you plan the ribbon-cutting ceremony, be sure you’ve done all you can to ensure the success of both your existing and new locations. Ask yourself some key questions to get a better sense of whether a new location will actually help grow your business:

1.      What’s driving your interest in another location? It’s important to articulate specifically how the new location will help your business move toward its long-term goals. Expanding simply because the time seems right isn’t a compelling enough reason to take on the risk.

2.      How solidly is your current location performing? As management, you’ll find that your time and attention will be diverted while you get the second location up and running. Yet, you’ll need to maintain the revenue your first location is generating — especially until the second one is earning enough to support itself. The upshot? Your original operation needs to be able to operate well with minimal management guidance.

3.      Can you expand in other ways that are less costly and risky?You might be able to boost sales by adding inventory or extending hours at your current location. Another option is to revamp your website or mobile app to encourage more online sales. The investment required for any of these steps would likely be a fraction of the amount required to open another physical location.

4.      How strong is the location you’re considering? Just as you did with your first location, you want to make sure the surrounding market is strong enough to support your business. Whether it’s an urban center or a suburban industrial complex, the setting should complement your business. You’ll want to consider proximity to your competitors. In some cases, such as a cluster of restaurants in a small downtown, proximity can help. The area becomes known as a destination for those seeking a night out. But too many competitors could mean that all businesses will be fighting for the same small group of customers.

5.      How might expansion affect business at both locations? Opening a second location prompts a consideration that didn’t exist with your first: how the two locations will interact. Placing the two operations near each other can make it easier to manage both, but it also can lead to one operation cannibalizing the other. Ideally, the two locations will have strong, independent markets.

6.      What are the financial issues? You’ll also need to consider the economic aspects. Look at how you’re going to fund the expansion. Ideally, the first location will generate enough revenue so that it can both sustain itself and help fund the second. But it’s not uncommon for construction costs and timelines to exceed initial projections. You’ll want to include some extra dollars in your budget for delays or surprises. If you have to starve your first location of capital to fund the second, you’ll risk the success of both.

7.      What are the tax implications? It’s important to take into account the tax ramifications as well. Property taxes will affect your bottom line. For instance, you may be able to cut your tax bill by locating in an Enterprise Zone. Of course, the location still needs to make sense for your business. The key is to include the tax impact when assessing locations.

8.      Can you duplicate the success of your current location? If your first location is doing well, it’s likely because you’ve put in place the people and processes that keep the business running smoothly. It’s also because you’ve developed a culture that resonates with your customers. You need to do the same at subsequent locations. 

Opening another location is a significant step. Holbrook & Manter can help you address these questions to minimize risk and boost the likelihood of success. Contact us today.

Tax season: This is what you don’t see

 

By: Molly Pensyl, Business Development Manager

This year’s tax filing deadline is upon us. April 18 is just ahead…. there is a light at the end of the tunnel… it won’t be long now.

The H&M team (like so many other accounting professionals across the country) has worked lengthy hours and been tackling complex tax issues since tax season got underway in January.  As the Business Development Manager for H&M, I am not as knee deep in returns and the stress of deadlines as my colleagues.  However, I do get a special view of this time of year and the dedication put forth by our team that I just had to share.  A look behind the tax season curtain if you will.

Sure, there are tax documents and client materials galore and computers that have been on so long they are giving off steam- information and images about those elements wouldn’t surprise you so I will stay away from those. Let’s talk about what you don’t see or hear about:

Tick, tock, tick, tock… the clock won’t stop:  My hat is off to our team who is pulling long hours as we approach the finish line of yet another tax season. The start times around here are early and the end times come along way after the sun goes down.  Again, this is the world of accounting this time of year. Our team is committed to our clients and they stay on the clock as long as needed each day to make sure every tax issue is addressed and everything is filed correctly and on time.

Anytime is the right time for coffee: With long hours comes the need for endless caffeine. I’ll go ahead and keep my hat off in honor of the coffee machines at our various office locations. Such a workout they get this time of year. Dark roast, mocha, herbal tea… you name it, we have it… and our people are throwing it back in the name of productivity.

You won’t go hungry here:  We feed our people during tax season and we mean business about it. The kitchen at each office is stocked with snacks. Lunch is also provided once a week for the team… this is known as “tax perk” day. Team members often share breakfast together at the office on the weekends as they work. We are also fortunate enough to have many of those we have relationships with outside of the firm bring by food and other goodies to get us through tax season. There is no shortage of fuel around here!

Team work makes the dream work: Our team is here and they have coffee in hand- the perfect setting for some serious team collaboration. Discussions about how to best navigate the tax challenges, minimize our client tax obligations and the overall needs of our clients are taking place constantly. Together our team is finding solutions for our clients, getting their returns filed and much more. Our team stops at nothing and works together to best serve our clients.

Complexity took the corner office: Preparing and filing taxes is no simple task. This is why we see more and more folks getting away from handling their taxes on their own, and turning to a seasoned tax firm to take care of it for them.  In many cases, we are preparing and filing both personal and business returns for our clients. This means handfuls of documents to review, several numbers to input, many deductions to consider, future financial goals to evaluate… the list goes on and on. The needs of our clients in regards to tax compliance are often times complex and we gladly navigate through them on their behalf.

Celebrate good times, c’mon: I share an office with one of our senior assistant accountants. She has provided me with quite the soundtrack this tax season. I hear her get excited for a client who has purchased a new business. She expresses how happy she is for a business owner who had an exceptionally good year. When sales are up for a client’s business, she is having a little celebration for them at her desk. Her tone is cool, calm and collected as she works through a tax challenge for a client. This type of thing is happening at each of our offices. We’re celebrating every milestone right along with our clients. Our approach is a very personal one.

 

Top 10 Things to know about Farm Income and Deductions

H&M’s Brian Ravencraft continues to write a monthly article for Ohio’s Country Journal. Fittingly, his focus for the month of April was tax-related.  He shares a reminder checklist from the IRS that farmers should review ahead of the tax filing deadline. Brian shares that those who have already filed may want to double check to be sure all of the items on the check list were considered as a part of their return.

Review the checklist within Brian’s article by clicking the link below. Please contact us with any questions you may have. We would be happy to assist you.

 

http://ocj.com/2017/03/top-10-things-to-know-about-farm-income-and-deductions/

 

 

Ramping Up Depreciation Deductions with a Cost Segregation Study

Businesses that acquire, construct or substantially improve a building — or did so in previous years — should consider a cost segregation study. These studies combine accounting and engineering techniques to identify building costs that are properly allocable to tangible personal property rather than real property. This may allow you to accelerate depreciation deductions, thus reducing taxes and boosting cash flow.

The basics

IRS rules generally allow you to depreciate commercial buildings over 39 years (27½ years for residential properties). Most times, you’ll depreciate a building’s structural components — such as walls, windows, HVAC systems, elevators, plumbing and wiring — along with the building. Personal property — such as equipment, machinery, furniture and fixtures —is eligible for accelerated depreciation, usually over five or seven years. And land improvements — fences, outdoor lighting and parking lots, for example — are depreciable over 15 years.

Too often, businesses allocate all or most of a building’s acquisition or construction costs to real property, overlooking opportunities to allocate costs to shorter-lived personal property or land improvements. In some cases — computers or furniture, for instance — the distinction between real and personal property is obvious. But often the line between the two is less clear. Items that appear to be part of a building may in fact be personal property, like removable wall and floor coverings, removable partitions, awnings and canopies, window treatments, signs, and decorative lighting.

In addition, certain items that otherwise would be treated as real property may qualify as personal property if they serve more of a business function than a structural purpose. This includes reinforced flooring to support heavy manufacturing equipment, electrical or plumbing installations required to operate specialized equipment, or dedicated cooling systems for data processing rooms.

Although the relative costs and benefits of a cost segregation study depend on your particular facts and circumstances, it can be a valuable investment. For example, let’s say you acquire a nonresidential commercial building for $5 million on January 1. If the entire purchase price is allocated to 39-year real property, you’re entitled to claim $123,050 (2.461% of $5 million) in depreciation deductions the first year. A cost segregation study may reveal that you can allocate $1 million in costs to five-year property eligible for accelerated depreciation. Reallocating the purchase price increases your first-year depreciation deductions to $298,440 ($4 million × 2.461%, plus $1 million × 20%).

A cost segregation study can assist you in making partial asset disposition elections and deducting removal costs under the recently issued final tangible property regulations. Consult with your tax advisor about the possible interplay that may prove beneficial depending on your situation.

Look-back studies

If your business invested in depreciable buildings or improvements in previous years, it’s not too late to take advantage of a cost segregation study. A “look-back” cost segregation study allows you to claim missed deductions back to 1987.

To claim these tax benefits, file Form 3115,“Application for Change in Accounting Method,” with the IRS and claim a one-time “catch-up” deduction on your current year’s return. There’s no need to amend previous years’ returns.

Property and sales tax considerations

You can also use cost segregation studies to support the property tax or sales tax treatment of certain items. For example, you might use a study to document the cost of tax-exempt property. Many states exempt property used in manufacturing, for example.

A word of caution: Certain property may be treated differently for income tax and property tax purposes, and reporting mistakes can lead to double taxation. Suppose your state has a personal property tax and that you reclassify certain building components as personal property for income tax purposes based on a cost segregation study. If you report these items to the state as taxable personal property, but state law treats them as part of the real estate for real property tax purposes, they may be taxed twice: once as personal property and once as real property.

To avoid this result, be sure you have systems in place to track the costs of these items separately for income tax and property tax purposes.

Is it right for you?

Cost segregation studies may yield substantial benefits, but they’re not right for every business. To find out whether a study would be worthwhile, we would be happy to to do an initial evaluation to assess the potential tax savings. Contact H&M today.

 

Fake $100 Bills Being Circulated in Central Ohio

A warning was recently issued about counterfeit money making its way to central Ohio. According to the U.S. Secret Service and the Westerville Police, counterfeit old-style $100 bills have appeared in local cash circulation.

How is the fake money produced and how can you tell if an imposture makes its way you’re your wallet? Authorities warn that most of the fake bills have been made by bleaching $1 notes and digitally printing counterfeit $100 bills.  A genuine bill will have a security thread of micro-printing around the picture of Benjamin Franklin. The micro-printing will only be visible when held up to a light.  It is important to note that bills that were printed prior to 1990 do not have the security thread or the micro-printing around the portrait of Benjamin Franklin.

If you believe you have come across a counterfeit $100 bill, please contact the Westerville Division of Police or the U.S. Secret Service Office.

The Importance of Reviewing your Company’s Buy-Sell Agreement

If you own a business and follow professional advice, you’ve likely established a buy-sell agreement in case you or a co-owner voluntarily or involuntarily leaves the company. Assuming this is true, remember that it’s not enough to draft an agreement and put it in a safe place. You need to review and perhaps revise the document periodically.

Problems solved

The primary purpose of every buy-sell agreement is to legally confer on the owners of a business or the business itself the right or obligation to buy a departing owner’s interest. But a well-crafted agreement can also help ensure that control of your business is restricted to specified individuals, such as current owners, select family members or upper-level managers.

Another purpose of a buy-sell agreement is to establish a price for the ownership interests. You should engage a qualified appraiser to estimate the value of those interests when first making a buy-sell agreement, and periodically thereafter to ensure the price keeps up with the growing (or shrinking) value of your company.

Estate planning is also a priority for many buy-sell agreements. If your agreement was drafted more than a few years ago, you may need to update it based on recent gift and estate tax changes. For 2017, the top rate for the gift, estate and generation-skipping transfer (GST) taxes is 40% and the exemption limit is $5.49 million. However, also keep in mind that the President and Republicans in Congress have indicated a desire to repeal the estate tax, which might happen later this year.

Standard and unusual triggers

Most buy-sell agreements lie dormant for years. What can quickly bring one to life is a “triggering event,” such as the injury or death of an owner, or, when one retires or voluntarily leaves the company. These are the major events that can bring a buy-sell agreement into play, but other occurrences such as changes to marital status can as well. Also, many agreements cover events such as conviction of a crime, losing a professional license or  certification, or becoming involved in some other situation that is deemed inappropriate or illegal.

Options for Structuring an Agreement

Buy-sell agreements typically are structured as one of the following agreements:

Redemption, which permits or requires the business as a whole to repurchase an owner’s interest,

Cross-purchase, which permits or requires the remaining owners of the company to buy the interest, typically on a pro rata basis,

Hybrid, combines the two preceding structures. A hybrid agreement, for example, might require a departing owner to first make a sale offer to the company and, if it declines, sell to the remaining individual owners.

In choosing your buy-sell agreement’s initial structure, consider the tax implications. They will differ based on whether your company is a flow-through entity or a C corporation.

Sources of Funds

Buy sell agreements require a funding source so that remaining owners can buy their former co-owner’s shares. Life insurance is probably the most common, but there are alternatives. If you company is cash-rich and confident in its ability to remain so, you could rely on your reserves. However, this could leave many businesses vulnerable to an unplanned cash shortfall. Another option is to create a “sinking fund” by setting aside money for paying out the agreement over time. Again, if your cash flow begins to suffer, you may not have enough funds when they become needed.

Keeping your buy-sell agreement updated requires some effort. That effort will pay off in saved time and prevented conflicts should a triggering event take place. Whether you have a current buy-sell agreement that could use some reviewing and updating or you need to begin to draft an agreement all together, contact H&M. We will be happy to assist you.

 

 

Happy Ohio Agriculture Week!

This week we are celebrating Ohio Agriculture Week. Enacted by the legislature in 2011, Ohio Ag Week is recognized during the second full week of March to celebrate the vitally important role that agriculture plays both in this state and across the nation.

This special week is being celebrated in various ways across the buckeye state. Members of the Ohio Department of Agriculture team are out on foot making visits to various farms and businesses. You can go along with them by following them on twitter (@OhioDeptofAg). Other organizations and businesses are taking the time to reflect on how the agriculture industry has impacted their operations. We are doing so right along with them.

It’s hard not to take a moment to stop and appreciate the longevity and importance of agriculture. According to the United States Department of Agriculture, there are 74,500 farms in Ohio- being operated on 14,000,000 acres of land. From cattle and corn, to soybeans and various fruits, Ohio is a massive producer of agricultural products. We encourage you to take a look at the specifics at this link from the USDA. These statistics are impressive and deserve to be celebrated:  goo.gl/LwMhov

We have been working with agriculture professionals since our firm began in 1919. Many of these businesses are run by families and because we specialize in family-owned and closely-held businesses, we are uniquely suited to serve them. We take great pride in helping their operations grow and thrive. When asked what they enjoy most about working with agriculture professionals, our team members had this to say:

Farmers are innovative. Their industry has been around since before our country started and they are always finding ways to thrive through innovation. I love being a part of that. – Justin Linscott, Principal

No pun intended but they are “down to earth folks”;  wonderful privilege to work with families making their living off of the land and working with business owners who also work hand in hand with farmer producers.  We are fortunate and blessed to live in the bread basket of the world here in the Midwestern United States.  Brad Ridge, Managing Principal

Being someone that grew up on a farm and participated in 4-H, I enjoy being able to continue working with AG professionals, even if it is now in a different capacity.  I feel my upbringing gives me an edge in understanding the operations of our AG clients above and beyond what a CPA without that background could provide. - William Bauder, Manager

Farmers never die, they just go to seed! They seem to be realistic, in that, they plan for the worst and are pleasantly surprised when things turn out better than expected. Farmers also have the best weather related sayings…. And my dad who still farms at 74 years young still points these out today-

Ring around the moon?, rain real soon.

Taller weeds in the summer, the deeper the snow in the winter;

and

My favorites are related to wooly worms:-

If you see furry, all-black wooly worm, the winter will be cold.

The wider the brown band on a wooly worm, the milder the winter

 - Brian Ravencraft, Principal

To learn more about the services we offer in the agribusiness space, please visit this page:

http://www.holbrookmanter.com/agribusiness-accounting.php

 

Navigating SOX Compliance

 By: Dave Gruber, CPA

In familiarizing yourself with SOX and what your company needs to do to be compliant with SOX, there are two main documents that help drive this understanding – The Sarbanes-Oxley Act of 2002 and 2013 Internal Control – Integrated Framework.

The Sarbanes-Oxley Act of 2002 (SOX) was passed mainly to protect shareholders and the general public from accounting errors and fraudulent practices of a public company. Section 404 of SOX requires public companies to annually make an assessment of internal control over financial reporting. Section 404 also requires the company’s auditor to attest to the effectiveness of the company’s internal control over financial reporting.

The Committee of Sponsoring Organizations (COSO) published the 2013 Internal Control – Integrated Framework (The COSO Framework) which is an update of the original 1992 version.  The COSO Framework is recognized as the leading framework for designing, implementing, and conducting internal control and assessing the effectiveness of internal control – basically providing a road map to compliance with SOX. An executive summary (which is a great overview of internal control and the necessary elements to achieve an effective internal control system) of The COSO Framework can be obtained for free on COSO’s website.

In the latest framework, COSO defines internal control as a process, affected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.  Operations Objectives pertain to the effectiveness and efficiency of the entity’s operations, including operational and financial performance goals, and safeguarding assets against loss.  Reporting Objectives pertain to internal and external financial and non-financial reporting and may encompass reliability, timeliness, transparency, or other terms as set forth by regulators, recognized standard setters, or the entity’s policies.  Compliance Objectives pertain to adherence to laws and regulations to which the entity is subject.

The COSO Framework contains five components (Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities) of internal control necessary to meet internal control objectives. This framework also breaks down the five components into 17 principles representing the fundamental concepts associated with the components:

Control Environment:

1.) Demonstrates a commitment to integrity and ethical values

2.) Exercises oversight responsibility

3.) Establishes structure, authority and responsibility

4.) Demonstrates commitment to competence

5.) Enforces accountability

Risk Assessment:

6.) Specifies suitable objectives

7.) Identifies and analyzes risk

8.) Assesses fraud risk

9.) Identifies and analyzes significant change

Control Activities:

10.) Selects and develops control activities

11.) Selects and develops general control activities over technology

12.) Deploys control activities through policies and procedures

Information and Communication:

13.) Uses relevant information

14.) Communicates internally

15.) Communicates externally

Monitoring Activities:

16.) Conducts ongoing and/or separate evaluations

17.) Evaluates and communicates deficiencies

The COSO Framework mandates that all of the above 5 components and the related 17 principles must be present and functioning in order for management to conclude that internal control over financial reporting is effective.

To set up an effective set of internal controls, an entity should properly design and document internal controls, mapping these controls to the COSO components and principles outlined above. Once documented, the entity should perform detailed tests of the controls, evaluate test results (remediate testing exceptions where applicable), and make a final assessment of the effectiveness of the controls.  In short, utilizing The COSO Framework as a guide provides the right path to SOX compliance.

Contact Holbrook & Manter today for more information regarding SOX Compliance. We would be happy to assist you.

 

 

 

Crossing State Lines? Know about Nexus

For many years, business owners had to ask themselves one question when it came to facing taxation in another state: Do we have “nexus”? This term indicates a business presence in a given state that’s substantial enough to trigger the state’s tax rules and obligations.

The question is still a valid one. If you’re considering operating your business in multiple states, or are already doing so, it’s worth reviewing the concept of nexus and its tax impact on your company. H&M can help you do that, but here is some basic information:

Common criteria

Precisely what activates nexus in a given state depends on that state’s chosen criteria. Triggers can vary but common criteria include:

  • Employing workers in the state,
  • Owning (or, in some cases, even leasing) property there,
  • Marketing your products or services in the state,
  • Maintaining a substantial amount of inventory there, and
  • Using a local telephone number.

Strategic moves

As with many tax issues, the totality of facts and circumstances will determine whether you have nexus in a state. So it’s important to make assumptions either way. The tax impact could be significant, and its specifics will vary widely depending on just how the state in question approaches taxation.

For starters, strongly consider conducting a nexus study. This is a systematic approach to identifying the out-of-state taxes to which your business activities may expose you. The results of a nexus study may not necessarily be negative. You may find that your company’s overall tax liability is lower in a neighboring state. In such cases, it may be advantageous to create nexus in that state by, say, setting up a small office there. If all goes well, you may be able to allocate some income to that state and lower your tax bill.

Taxation and profitability

The grass is always greener on the other side of the fence… so the saying goes. If profitability crosses state lines, please contact H&M for help projecting how setting up shop there might affect your tax liability.

 

$1 Billion in Tax Refunds Remain Unclaimed

According to the IRS, they are on the hunt for taxpayers who are entitled to their share of unclaimed tax refund dollars.  $1 billion is reportedly sitting in wait for those who have not filed an income tax return for 2013.  Those who have not filed for 2013 can be found across the country, but the IRS estimates that as many as 36,000 people in Ohio have unclaimed dollars waiting for them. Just how much money has gone unclaimed by Ohioans? The IRS shares this total amount: $34,547,000.

Taxpayers have three years to claim refunds for returns they have failed to file. If you still have not filed for 2013 and believe you are entitled to a refund, you must file a return for that year by this year’s deadline, April 18, 2017. Should you not have your 2013 return postmarked by that date, those unclaimed funds become property of the U.S. Treasury Department. Something else to keep in mind- your 2013 unclaimed tax funds could still be held up if you have not filed returns for 2014 & 2015. The IRS warns that your refund dollars could be used to pay off funds owed to them or a state tax authority. Unpaid child support and federal debts could also change the amount you receive.

Contact us today with any questions you may have. We would be happy to help.