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

The Importance of Bank Reconciliations

By: Andrew Roffe, Staff Accountant

We are often asked what a bank reconciliation is and if we perform them. The answer is yes, we do and more information about what this practice entails is the topic of this blog.

Bank reconciliation… or a “Bank Rec” as you may hear it referred to…  is the practice of comparing your company records against bank records. Bank reconciliations are used to check for any variances between the two sets of records. It is normal to have minor variances between the company records and a bank’s record, which is usually caused by timing, bounced checks, checks in transit, and accounting errors. A reconciliation should easily explain these minor variances.

Bank reconciliations are also a key aspect of an internal control system and are necessary in preventing and detecting fraud. A proper internal control system will have multiple people in the accounting department involved in the cash cycles to create a segregation of duties. The person who performs the reconciliations should not be the same person that records the transactions in the accounting records or processes cash disbursements or receipts.

If your company undergoes an audit, the auditors will examine the company’s ending bank reconciliation as part of their testing procedures. The reconciliation offers a verification of the accuracy and completeness of the accounting records of the business.

Bank reconciliations are recommended to be performed at least monthly but may be performed more frequently. It may be necessary for a company running on minimal cash reserves to perform multiple bank reconciliations in a month. An organization may perform daily reconciliations if they suspect that someone is committing fraud.

For more information about bank reconciliations or internal controls, reach out to us today. We would be happy to assist you.

Fixing a Broken Trust

An irrevocable trust has long been a key component of many estate plans. But what if it no longer serves your purposes? Is it too late to change it? Depending on applicable state law, you may have options to fix a “broken” trust.

How trusts break

There are several reasons a trust can break, including:

Changing circumstances. A trust that works just fine when it’s established may no longer achieve its original goals if your family circumstances change.

New tax laws. Many trusts were created when gift, estate and generation-skipping transfer (GST) tax exemption amounts were relatively low. Today, however, the exemptions have risen to $11.18 million, so trusts designed to minimize gift, estate and GST taxes may no longer be necessary. And with transfer taxes out of the picture, the higher income taxes often associated with these trusts — previously overshadowed by transfer tax concerns — become a more important factor.

Mistakes. Potential errors include naming the wrong beneficiary, omitting a critical clause from the trust document, including a clause that’s inconsistent with your intent, and failing to allocate your GST tax exemption properly.

How to fix them

If you have one or more trusts in need of repair, you may have several tools at your disposal, depending on applicable law in the state where you live and, if different, in the state where the trust is located. Potential tools include:

Reformation. The Uniform Trust Code (UTC), adopted in more than half the states, provides several tools for fixing broken trusts. Non-UTC states may provide similar options. Reformation allows you to ask a court to rewrite a trust’s terms to conform with the grantor’s intent. This tool is available if the trust’s original terms were based on a legal or factual mistake.

Modification. This tool may be available, also through court proceedings, if unanticipated circumstances require changes in order to achieve the trust’s purposes. Some states permit modification — even if it’s inconsistent with the trust’s purposes — with the consent of the grantor and all the beneficiaries.

Relocation. In some cases, it may be possible to fix a broken trust by changing its situs — that is, by moving it to a jurisdiction whose laws are more favorable. The UTC may allow a trustee to relocate a trust to an appropriate jurisdiction if doing so would be in the beneficiaries’ best interests.

The rules regarding modification of irrevocable trusts are complex and vary dramatically from state to state. And there are risks associated with revising or moving a trust, including uncertainty over how the IRS will view the changes. Before you make any changes, consult with us to discuss the potential benefits and risks.

Is your Business Working – Or is it Working You?

By: Jennie Schott, Audit & Assurance Services Staff

No matter the size of your business venture, Holbrook & Manter is committed to helping you stay focused, passionate and compliant so you can be successful. According to the United States Small Business Administration, roughly twenty-percent of small businesses fail within the first year of inception, half fail within the first five years, and only one-third are still standing after the ten-year mark. It is widely known that – generally speaking – entrepreneurs are some of the most passionate, hard-working, innovative, and driven people in America. So, why has it become such a challenge for so many entrepreneurs to keep their businesses going?

Many entrepreneurs start with the passion, or idea, for a product or a service. Pairing passion with the drive to become a self-led boss, fix a societal problem, or a combination of things, can make a young entrepreneur feel confident enough to transition their concept into a business venture. While drive and passion are highly valuable attributes in the small business equation, the assumptions that (a) one person can do it with little assistance or knowledge outside of their own, and (b) mastering the execution of a product or service will be the hardest part of starting the business, are common pitfalls for young entrepreneurs.

“What kind of compliance rules and regulations am I supposed to be adhering to?”, or, “What kind of accounting software will I use?”, or, “How will I ensure I have enough cash flows to keep my business running – and how will I know how much cash I will need?” are most likely not the first few questions a new entrepreneur asks when pulling together the initial pieces of a start-up. Unfortunately, these can be some of the most detrimental oversights if small business owners do not seek the appropriate guidance during the life of their small business. Lack of planning for the right things can make a business owner over-worked, leading to frustration and turning the thing that was once a passion into a burden. The phrase ‘it takes an Army’ is no exception when it comes to running a successful small business – and that is where H&M comes in.

At Holbrook & Manter, CPAs, we offer a wide-range of business services, and have helped to promote long-term financial growth for our diverse client-base for almost 100 years. With the combination of the various backgrounds present in the leadership of our firm partnered with the longevity of many of our clients, we know what it takes to keep a small business on its feet.

From Start-Up and Business Planning consulting services, to becoming your business’s outsourced Accounting Department, our Business Services and Solutions Team can contribute the financial expertise, guidance and tools your business needs. Our Audit and Assurance team also offers a variety of consulting services, and can assist you and your business with ratio analysis, compilations of financial data, and different levels of Review and Audit services that may be required by third-party debt issuers and/or regulatory authorities. The services our teams can provide will help to ensure that your business is not only in compliance, but also determine the profitability of the business today, and in the future. Our hope is to be able to give small business owners the freedom and confidence to be actively involved in the pieces of the business that they are truly passionate about.

If charitable giving is part of your estate plan, consider a donor-advised fund

Do you make sizable gifts to charitable causes? If you’re fortunate enough to afford it, you can realize personal rewards from your generosity and may be able to claim a deduction on your tax return. But once you turn over the money or assets, you generally have no further say on how they’re used. You can exercise greater control over your charitable endeavors using a donor-advised fund (DAF). Bear in mind that under the Tax Cuts and Jobs Act, you must itemize to benefit from the charitable contributions deduction.

Setting up a DAF

As the name implies, your recommendations are integral to a DAF. First, you contribute to a fund typically managed by an independent sponsoring organization or an arm of a reputable financial institution. The minimum contribution generally is $5,000. In exchange for handling the management of the fund, the financial institution or organization usually charges an administrative fee based on a percentage of the deposit.

Next, you make recommendations as to how the DAF should distribute the assets to your favorite charities. Though technically you no longer have control of the money that has been contributed, the fund administrator will generally follow your advice. While you’re deciding which charities to support, your contribution is invested and grows tax-free. Then, your charitable choices are vetted by the organization to ensure that the recipients are qualified charitable organizations. Finally, the administrator cuts the checks and the funds are distributed to the charities.

DAF pros and cons

The advantages of using a DAF include an immediate tax deduction. Your contribution to the DAF is deductible in the tax year in which the initial contribution is made. You don’t have to wait until the fund makes distributions to the designated recipient. In addition, if you contribute appreciated property such as securities, there’s no capital gains tax on the appreciation in value. It remains untaxed forever. Moreover, contributions to a DAF aren’t subject to estate tax or the probate process, and the amounts contributed to the fund are invested and can grow without any tax erosion.

Conversely, despite some misconceptions, contributors to DAFs have effectively no control over how the money is spent once it’s disbursed to charities. Donors can’t benefit personally. For instance, you can’t direct that the money be used to buy tickets to a local fundraiser. In addition, detractors have complained about high administrative fees.

If you believe a DAF is the right charitable funding vehicle for you, be sure to shop around. Fund requirements — such as minimum contributions, minimum grant amounts and investment options — vary from fund to fund, as do the fees they charge. Contact Holbrook & Manter to help you find a fund that meets your needs.

Portals – Gateways to Convenience

 By: Linda Yutzy, Administrative Assistant

The cloud, VPN, virtual machine, AI, IoT, Blockchain, SEO, SaaS – confused yet?  It seems as if there is a new technology term every day.  Technology is changing and advancing so quickly that can be difficult to keep up.  We live in a time when we want and expect all information to be accessible in an instant – research articles (remember researching at the library and a card catalog?  Probably not!), important documents, health information, financial information, important contacts, etc. We want all information at our fingertips. 

A fast growing way to accomplish this is with portals – an internet site that provides access or a link to another site – like a gateway, but in a good way!  I like to look at it as an interactive mail box in the cloud.  Doctor’s offices are rapidly moving toward this technology.  When a patient has any kind of testing or procedure, the results are posted in the patient portal.  The patient then has access to his or her results and can then ask the provider questions and generally be more informed. 

We are using the same sort of technology in the accounting, tax and audit fields.  Our firm can set up a client portal and we can “post” a client’s tax return from our software platform to the portal.  And, we can “upload” items that we want our clients to see or take action on.  Automatic emails are sent when documents are uploaded or posted, so a phone call or another email is typically unnecessary.  The client now has access to the documents 24/7.  No longer do they need to wait until our office opens to request a copy of their tax return – it is posted and they have access to it as long as they have access to the internet.  This is especially convenient when a client needs a copy of their prior years of returns for a banker, attorney and/or wealth planner.  

It also helps with our distant clients.  We have several clients who no longer live in the area, but we can keep preparing tax returns easily – they can upload copies of their tax source documents and we can prepare the returns and post them.  We do not have to rely on the United States Postal Service or Federal Express to deliver returns and then be concerned if they do not arrive.  This is especially important when deadlines are looming and we are waiting on a broker statement or a needed tax document.   

And, did I mention the security?  Portals are much more secure than emails or snail mail.  The portal is registered and a login and password has to be created by the user.  Passwords must be changed frequently and there are requirements for the passwords.  PASSWORD or 123456 is not a valid option! 

If you are confused about portals or hesitant to try them, be reassured that the convenience and safety can outweigh your fears. We would be happy to help you learn more… contact us today.

New Board Appointment for H&M’s Dave Gruber

Dave Gruber, Director of Risk Advisory Services for Holbrook & Manter, CPA’s, has been appointed to the Retirement Board for the State Teachers Retirement System of Ohio (STRS Ohio).  He was appointed jointly by the Speaker of the House and the Senate President in May, 2018, and his term extends through November 4, 2020.

STRS Ohio is one of the nation’s premier retirement systems, serving nearly 493,000 active, inactive and retired Ohio public educators. With investment assets of $77.6 billion (including short-term investments) as of June 30, 2017, STRS Ohio is one of the largest public pension funds in the country. 

For more information about STRS Ohio, please visit www.strsoh.org.

Your original will: Let your family know where it is located

In a world that’s increasingly paperless, you’re likely becoming accustomed to conducting a variety of transactions digitally. But when it comes to your last will and testament, only an original, signed document will do.

A photocopy isn’t good enough

Many people mistakenly believe that a photocopy of a signed will is sufficient. In fact, most states require that a deceased’s original will be filed with the county clerk and, if probate is necessary, presented to the probate court. If your family or executor can’t find your original will, there’s a presumption in most states that you destroyed it with the intent to revoke it. That means the court will generally administer your estate as if you’d died without a will.

It’s possible to overcome this presumption — for example, if all interested parties agree that a signed copy reflects your wishes, they may be able to convince a court to admit it. But to avoid costly, time-consuming legal headaches, it’s best to ensure that your family can locate your original will when they need it.

Storage options

There isn’t one right place to keep your will — it depends on your circumstances and your comfort level with the storage arrangements. Wherever you decide to keep your will, it’s critical that 1) it be stored safely, and 2) your family know how to find it. Options include:

  • Having your accountant, attorney or another trusted advisor hold your will and making sure your family knows how to contact him or her, or
  • Storing your will at your home or office in a fireproof lockbox or safe and ensuring that someone you trust knows where it is and how to retrieve it.

Storing your original will and other estate planning documents safely — and communicating their location to your loved ones — will help ensure that your wishes are carried out. Contact Holbrook & Manter today if you have questions about other ways to ensure that your estate plan achieves your goals.

Brushing up on Bonus Depreciation

Every company needs to upgrade its assets once in a while, whether desks and chairs or a huge piece of complex machinery. But before you go shopping this year, be sure to brush up on the enhanced bonus depreciation tax breaks created under the Tax Cuts and Jobs Act (TCJA) passed late last year.

Old law

Qualified new — not used — assets that your business placed in service before September 28, 2017, fall under pre-TCJA law. For these items, you can claim a 50% first-year bonus depreciation deduction. This tax break is available for the cost of new computer systems, purchased software, vehicles, machinery, equipment, office furniture and so forth.

In addition, 50% bonus depreciation can be claimed for qualified improvement property, which means any qualified improvement to the interior portion of a nonresidential building if the improvement is placed in service after the date the building is placed in service. But qualified improvement costs don’t include expenditures for the enlargement of a building, an elevator or escalator, or the internal structural framework of a building.

New law

Bonus depreciation improves significantly under the TCJA. For qualified property placed in service from September 28, 2017, through December 31, 2022 (or by December 31, 2023, for certain property with longer production periods), the first-year bonus depreciation percentage is increased to 100%. In addition, the 100% deduction is allowed for both new and used qualifying property.

The new law also allows 100% bonus depreciation for qualified film, television and live theatrical productions placed in service on or after September 28, 2017. Productions are considered placed in service at the time of the initial release, broadcast or live commercial performance.

In later years, bonus depreciation is scheduled to be reduced to 80% for property placed in service in 2023, 60% for property placed in service in 2024, 40% for property placed in service in 2025 and 20% for property placed in service in 2026.

Important: For certain property with longer production periods, the preceding reductions are delayed by one year. For example, 80% bonus depreciation will apply to long-production-period property placed in service in 2024.

More details

If and when bonus depreciation isn’t available to your company, a similar tax break — the Section 179 deduction — may be able to provide comparable benefits. Please contact Holbrook & Manter for more details on how either might help your business

H&M’s Stephen Smith Speaks at Columbus Startup Week

Columbus Startup Week 2018 is off and running and H&M Principal, Stephen Smith CPA, CGMA, MBA, CVA had the honor of sitting on a panel of experts on the first day of the event.

The session was entitled, “It’s Time to Call in The Pros” and Stephen shared tips with audience members on how to navigate the accounting side of starting and running a business. He was joined on stage by other experts that business owners should consult with… lawyers, an insurance agent and a financial planner rounded out the panel.

Stephen encouraged the start up attendees to consider partnering with an accounting firm as opposed to a smaller accounting operation that could reach capacity quickly and not be equipped to grow along side of the business. He shared that ultimately, the key is to partner with advisors that will be an advocate for your success. Advisors who will guide you and help you reach your goals as a business owner.

Columbus Startup Week is a unique event and a stellar resource for those in the Columbus business community. As their website states: Columbus Startup Week  isn’t just for founders and investors—it’s for anyone and everyone looking to connect, collaborate, and grow with the community. From students to CEOs, we have sessions for everyone.

Thank you to the event organizers for inviting us to be a part of this event again this year. Learn more about Columbus Startup Week here: www.cmhstartupweek.com

Know about IRD if you have received an inheritance

Most people are genuinely appreciative of inheritances. But sometimes it may be too good to be true. While inherited property is typically tax-free to the recipient, this isn’t the case with an asset that’s considered income in respect of a decedent (IRD). If you inherit previously untaxed property, such as an IRA or other retirement account, the resulting IRD can produce significant income tax liability.

IRD explained

IRD is income that the deceased was entitled to, but hadn’t yet received, at the time of his or her death. It’s included in the deceased’s estate for estate tax purposes, but not reported on his or her final income tax return, which includes only income received before death.

To ensure that this income doesn’t escape taxation, the tax code provides for it to be taxed when it’s distributed to the deceased’s beneficiaries. Also, IRD retains the character it would have had in the deceased’s hands. For example, if the income would have been long-term capital gain to the deceased, it’s taxed as such to the beneficiary.

IRD can come from various sources, such as unpaid salary and distributions from traditional IRAs. In addition, IRD results from deferred compensation benefits and accrued but unpaid interest, dividends and rent.

What recipients can do

If you inherit IRD property, you may be able to minimize the tax impact by taking advantage of the IRD income tax deduction. This frequently overlooked write-off allows you to offset a portion of your IRD with any estate taxes paid by the deceased’s estate that was attributable to IRD assets.

You can deduct this amount on Schedule A of your federal income tax return as a miscellaneous itemized deduction. But unlike many other deductions in that category, the IRD deduction isn’t subject to the 2%-of-adjusted-gross-income floor. Therefore, it hasn’t been suspended by the Tax Cuts and Jobs Act.

Keep in mind that the IRD deduction reduces, but doesn’t eliminate, IRD. And if the value of the deceased’s estate isn’t subject to estate tax — because it falls within the estate tax exemption amount ($11.18 million for 2018), for example — there’s no deduction at all.

Calculating the deduction can be complex, especially when there are multiple IRD assets and beneficiaries. Basically, the estate tax attributable to a particular asset is determined by calculating the difference between the tax actually paid by the deceased’s estate and the tax it would have paid had that asset’s net value been excluded.

Be prepared

IRD property can result in an unpleasant tax surprise. Holbrook & Manter can help you identify IRD assets and determine their tax implications. Contact us today.