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

Net Operating Loss Rules Can Offer Tax Relief

From time to time, a business may find that its operating expenses and other deductions for a particular year exceed its income. This is known as incurring a net operating loss (NOL).

In such cases, companies (or their owners) may be able to snatch some tax relief from this revenue defeat. Under the Internal Revenue Code, a corporation or individual may deduct an NOL from its income.

3 ways to play

Generally, you take an NOL deduction in one of three ways:

1.      Deducting the loss in previous years, called a “carryback,” which creates a refund,

2.      Deducting the loss in future years, called a “carryforward,” which lowers your future tax liability, or

3.      Doing a little bit of both.

A corporation or individual must carry back an NOL to the two years before the year it incurred the loss. But the carryback period may be increased to three years if a casualty or theft causes the NOL, or if you have a qualified small business and the loss is in a presidentially declared disaster area. The carryforward period is a maximum of 20 years.

Direction of travel

You must first carry back losses to the earliest tax year for which you qualify, depending on which carryback period applies. This can produce an immediate refund of taxes paid in the carryback years. From there, you may carry forward any remaining losses year by year up to the 20-year maximum.

You may, however, elect to forgo the carryback period and instead immediately carry forward a loss if you believe doing so will provide a greater tax benefit. But you’ll need to compare your marginal tax rate — that is, the tax rate of the last income dollar in the previous two years — with your expected marginal tax rates in future years.

For example, say your marginal tax rate was relatively low over the last two years, but you expect big profits next year. In this case, your increased income might put you in a higher marginal tax bracket. So you’d be smarter to waive the carryback period and carry forward the NOL to years in which you can use it to reduce income that otherwise would be taxed at the higher rate.

Then again, as of this writing, efforts are underway to pass tax law reform. So, if tax rates go down, it might be more beneficial to carry back an NOL as far as allowed before carrying it forward.

Many circumstances can create an NOL. Whatever the reason, the rules are complex. Don’t go it alone, let us help you work through the process. Contact Holbrook & Manter today.

Important 2017 Third Quarter Tax Deadlines

July 17 — If the monthly deposit rule applies, employers must deposit the tax for payments in June for Social Security, Medicare, withheld income tax and nonpayroll withholding.

July 31 — If you have employees, a federal unemployment tax (FUTA) deposit is due if the FUTA liability through June exceeds $500.

  • The second quarter Form 941 (“Employer’s Quarterly Federal Tax Return”) is also due today. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until August 10 to file the return.

August 15 — If the monthly deposit rule applies, employers must deposit the tax for payments in July for Social Security, Medicare, withheld income tax and nonpayroll withholding.

September 15 — Third quarter estimated tax payments are due for individuals, trusts and calendar-year corporations.

  • If a six-month extension was obtained, partnerships should file their 2016 Form 1065 by this date.
  • If a six-month extension was obtained, calendar-year S corporations should file their 2016 Form 1120S by this date.
  • If the monthly deposit rule applies, employers must deposit the tax for payments in August for Social Security, Medicare, withheld income tax, and nonpayroll withholding.

 

H&M Team Members Make Cards for Patients at Nationwide Children’s Hospital

Our team members recently stepped away from their computers and calculators in order to put their art skills to work in the name of kids at Nationwide Children’s Hospital in Columbus. Each office spent time crafting cards meant to brighten the day of patients at NCH. Much love and creativity went into each card, as did countless stickers, drawings and kind sentiments. Our creations are on their way to NCH… but we had to share a look at them with you. See below. Thank you to the H&M Family for all of your efforts.

 

 

Tax Issues After Divorce

By: Mark Rhea, J.D.- Senior Assistant Accountant

I was at Roosters Restaurant a couple of weeks ago with my family and I was reading some of the funny sayings that were on the wall. One that stuck with me is “Love is grand. Divorce is twenty grand.” Divorce is painful and expensive. One thing that is not often talked about is tax issues that arise after divorce. After reading some recent tax cases and doing taxes returns for my first busy season this year, I wanted to share what I have read and discovered.

Did you know that several days ago, a tax court refused to recognize a tax deduction for alimony paid in an amount of $137,290 over a two-year period due to the fact that although the taxpayer was able to show that he did pay his ex-wife that amount of money and it was based on an oral agreement between him and his ex-wife, the IRS would not permit the deduction for that amount as the actual court-ordered alimony only totaled $48,000 for the two-year period. As a result, the taxpayer lost an alimony deduction of $89,290 due to the fact that there was no court order requiring the additional payments. See Barry L. Bulakites v. Commissioner, TC Memo 2017-79.

Another tax court recently found  that despite the fact that parties agreed in their divorce decree that they would split any tax liabilities “50-50”, the IRS was not bound by the that determination as they were not parties to the divorce proceeding and did not agree to that split. See Mae I. Asad, et al v. Commissioner, TC Memo 2017-80.

The rude awakenings that happened to these parties may not have happened had they consulted with tax professionals first. Tax professionals can help people who are recently divorced navigate this uncertainty and can answer any questions they have. This is especially true if the other spouse was solely handling all tax matters during the marriage. A tax professional can help with any questions that they may have and with tax matters that inevitably arise with divorce such as change in filing status, dependency deductions and exemptions, income tax withholding adjustments, evaluation of itemized deductions, health care savings accounts, investment and retirement accounts, and child care expenses.

When people get divorced, it is important that they seek help in navigating through tax laws and regulations so there are no surprises. At Holbrook & Manter, we stand ready to assist you in going forward with your life and ensure that your tax matters are handled with care.

Knowing the tax impact of renting our your vacation home

When buying a vacation home, the primary objective is usually to provide a place for many years of happy memories. But you might also view the property as an income-producing investment and choose to rent it out when you’re not using it. Let’s take a look at how the IRS generally treats income and expenses associated with a vacation home.

Mostly personal use

You can generally deduct interest up to $1 million in combined acquisition debt on your main residence and a second residence, such as a vacation home. In addition, you can also deduct property taxes on any number of residences.

If you (or your immediate family) use the home for more than 14 days and rent it out for less than 15 days during the year, the IRS will consider the property a “pure” personal residence, and you don’t have to report the rental income. But any expenses associated with the rental — such as advertising or cleaning — aren’t deductible.

More rental use

If you rent out the home for more than 14 days and you (or your immediate family) occupy the home for more than 14 days or 10% of the days you rent the property — whichever is greater — the IRS will still classify the home as a personal residence (in other words, vacation home), but you will have to report the rental income.

In this situation, you can deduct the personal portion of mortgage interest, property taxes and casualty losses as itemized deductions. In addition, the rental portion of your expenses is deductible up to the amount of rental income. If your rental expenses are greater than your rental income, you may not deduct the loss against other income.

If you (or your immediate family) use the vacation home for 14 days or less, or under 10% of the days you rent out the property, whichever is greater, the IRS will classify the home as a rental property. In this instance, while the personal portion of mortgage interest isn’t deductible, you may report as an itemized deduction the personal portion of property taxes. You must report the rental income and may deduct all rental expenses, including depreciation, subject to the passive activity loss rules.

Brief examination

This has been just a brief examination of some of the tax issues related to a vacation home. Please contact Holbrook & Manter today for a comprehensive assessment of your situation. Know how you will be impacted tax wise before making a vacation home purchase.

Examining the New Accounting Standard for Not-for-Profit Organizations

By: William Bauder, CPA, CGMA, CITP, Manager of Assurance and Advisory Services 

We have blogged before about the new accounting standard that have come to pass for Not-For-Profit organizations in regards to accounting and their financial statements.  The Financial Accounting Standards Board (FASB) issued a new accounting standard in August 2016. The change was a major one for the not-profit community, as it was the most meaningful change made to the FASB’s current guidelines since 1993. After nearly a quarter century of doing things one way, not-for profits now have to adhere to the new standard that changes the disclosure and presentation requirements for financial statements. This new standard is designed to assist not-for-profits in sharing more detailed and relevant information with everyone from donors to creditors and everyone in between that may review their financial statements. According to the FASB, the new standard simplifies and improves the face of the financial statements for not-for-profits and enhances the disclosures in the notes.

  • The new standard is effective for fiscal years beginning after 12/15/2017 (effective for 2018 financial statements). Let’s take a look at the main provisions to the standard:
  • There are no longer three classes of new assets, now only 3 remain.
  • It is now permissible to present the cash flow for the organization using the direct of indirect method.
  • Organizations are no longer required to disclose investment related expenses.
  • Enhanced disclosures now exist as they relate to:

           Board or self-imposed restrictions-

           Donor restrictions

           Cash management

          Cost allocation methods

          Underwater endowment funds

          Expense classification by natural and functional classification

As someone who works with Not-For-Profits daily, I believe the biggest change maybe be for those entities that were never previously required to present a statement of functional expenses.  Difficulties or questions we expect to hear would be related to determining how to do this; how to set up a chart of accounts to accomplish this; and how to determine reasonable basis’ for allocation methods. 

Currently, a statement of functional expenses is only required for health and welfare organizations.  Although, most organizations that do not meet this definition for financial reporting, still must break down expenses in this way for presentation on their 990.  This is only the case for 501(c)(3) and 501(c)(4) organizations, however. 

Please contact us today with any questions you may have about the new standard. We would be happy to assist you.

H&M’s Justin Linscott Attends House Ways and Means Committee Meeting

As some of my previous blogs have outlined, I travel to Washington D.C. often to attend important hearings, usually almost always on the topic of tax. I just returned from my most recent visit to the nation’s capital where I attended a Ways and Means Committee hearing on the topic of tax reform and how it could potentially grow our economy and create jobs across America.

The hearing took a close look at tax reform policies (as opposed to a simple tax cut policy) that will generate economic growth, create jobs and increase pay checks for those working in the United States. Witnesses spoke about specific policy proposals surrounding possible tax reform under President Donald Trump.  It was extremely exciting to be present at the hearing. I was even fortunate enough to have a conversation with House Ways and Means committee Chairman, Kevin Brady (R-TX). I enjoyed walking back to the Capital with him, a picture of us can be found below. I spent the remainder of my time in D.C. speaking with representatives from both parties and meeting with business owners and executives.  More specifics about the hearing and tax reform can be found here: https://taxfoundation.org/takeaways-house-ways-means-may-18-tax-reform-hearing/

My next trip to D.C. will be in June or July to meet with U.S. Representatives and legislative aids in June or July. I will be sure to share details on our blog. In the meantime, be sure to follow us here on our website and also through our social media outlets for the latest in tax news.

 

Vote for Holbrook & Manter for “Best of Business” Award

Holbrook & Manter  is proud to once again be a finalist for a Columbus CEO Magazine “Best of Business” award. Voting for the 2017 poll is now open.

We are nominated in the “Best Accounting Firm” category (less than 20 CPAs). You will find this under the “Financial” section of the voting ballot. We were honored to be named the winner in this category in 2015.

The ballot can be accessed here and voting is open through July 14, 2017.

http://columbusceo.secondstreetapp.com/l/Columbus-CEOs-Best-of-Business-2017/Ballot/FINANCIAL

Our team values and appreciates all the hard work each of us provides to support each other, and most importantly, our clients. We also value and encourage supporting all businesses in the region. Vote now for all of your favorites!

Voting only takes a moment. We are honored to be nominated and appreciate your support.

H&M’s Managing Principal Records Podcast for Tri-Village Chamber Partnership

Holbrook & Manter enjoys the relationship we share with the Tri-Village Chamber Partnership. This is the chamber that serves the areas of Grandview Heights, Marble Cliff and Upper Arlington. Our Columbus area office is located in Grandview Heights, in the Grandview Yard development. Just over a year ago, the Tri-Village Chamber Partnership was born thanks to the joining of the Grandview and Upper Arlington chambers.  They are such a great resource for businesses of all sizes in all three neighboring communities.

Michelle Wilson, Executive Director of the Tri-Village Chamber Partnership, recently invited us to be the featured member on the new podcast series they launched just this year. We were excited to share our story. H&M’s Managing Principal, Brad Ridge was a natural fit for the interview and enjoyed sitting down with Michelle to talk about our firm’s history and our service offerings. He also shared some personal information about himself. He talked about everything from the importance of mentoring to a key piece of advice he would share with other professionals.

Click below to read some additional highlights of the interview and be sure to select one of the many ways to listen to the full podcast at the bottom of the page. Thank you to the Tri-Village Chamber Partnership for having us!

https://chamberpartnership.org/business-inspires-episode-4-holbrook-manter-cpas/

H&M’s Justin Linscott Speaks at Columbus Startup Week

H&M’s Justin Linscott had the honor of speaking at Columbus Startup Week along with Allison DeSantis, Director of Business Services, Office of The Ohio Secretary of State John Husted.  Justin and Allison’s session was entitled “How to Become an LLC” and touched upon everything from how to register your business as an LLC to all of the financial considerations and tax matters that business owners need to consider when starting a new venture.

Detailed information about the LLC process was shared during the hour long session, held at Vue Columbus, where Columbus Startup Week Basecamp 2017, Powered by Chase for Business is set up. Allison and Justin presented on the main stage to a room full of attendees who were armed with great questions, which made for a very interactive session.

Allison shared that the LLC form for Ohio is basic and can be filled out online. She explained that it costs $99.00 to register your business. She suggested that entrepreneurs register their business name before embarking on any business practices such as ordering marketing materials or placing signs on doors. This way, the business owner can be sure that their business name is available and preserved for their use. She shared that open business names can be searched on the Secretary of State’s website or, a quick phone call or email to the office will let you know if the desired business name is an option. Learn more about registering your LLC with the State of Ohio by clicking here: https://www.sos.state.oh.us/SOS/

Justin presented during the second half of the session and touched on the financial elements that come into play when deciding your entity structure. Justin encouraged those in attendance to have good advisors in their corner from the beginning, including an attorney, accountant and insurance professional. In addition to registering with the Secretary of State’s office, Justin explained that new businesses should also register with the Ohio Business Gateway: http://business.ohio.gov/starting/  He explained the ins and outs of planning for and paying quarterly taxes, payroll taxes, commercial activity tax, etc. Justin also shared what businesses planning to sell goods should also register for a vendor’s license.

Justin and Allison enjoyed fielding questions from those in attendance. It’s a difficult task to cover everything that one must know about starting an LLC is just a one-hour session. Justin and Allison stayed after to visit with attendees and address additional concerns.

If you have specific questions about starting a business, please reach out to Holbrook & Manter. We would be happy to assist you and place you on the road to success.