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

H&M Team Members Hold Art Supply Drive for Nationwide Children’s Hospital

Our team members are passionate about supporting a number of causes. Collectively, we continue to support Nationwide Children’s Hospital. Our team was asked to bring in art supplies over part of the summer that could then be donated to the patients at the hospital.  From markers and crayons… to coloring books and scissors… we covered all of the artistic bases. We had so much fun gathering up all of these colorful items in the hopes to brighten the day of those at Nationwide Children’s. As always, the process to drop off our donation was an easy one. It was our pleasure to deliver all that we collected to the friendly staff at the hospital. Happy art-creating to all of the patients! 

Looking to learn more about Nationwide Children’s Hospital? They share this write-up on their website:

Nationwide Children’s Hospital is a destination academic pediatric medical center designed to manage the most complex of diseases. We treat the sickest of patients from across the country and around the world. We build research programs to assure tomorrow’s breakthroughs help children everywhere. And we train the next generation of physicians, scientists and health care professionals.

Beyond our walls, we invest in building social equity in our communities, address the social determinants of health, and develop payment models to better serve unique populations of children. Our unparalleled investment in Behavioral Health services and research further cements our role as an ambitious champion for the well-being of children everywhere.

Turning these Common Business Expenses into Deductions

By: Grant Trudel, MBA- Senior Assistant Accountant  

Common expenses taken as deductions for businesses are travel, mileage reimbursement, and de minimis office expenses.  These have been areas of IRS scrutiny and have strict documentation guidelines that need to be followed for the deductions to be allowed. When your business has significant expenses related to the ordinary and necessary conduct of business operations, the tax consequences can be significant when the expenses are disallowed under an IRS audit.

There are varying rules and tax consequences regarding the deductibility of de minimis office expenses, travel, and vehicle/mileage reimbursement expenses, but one thing is constant: proper documentation is critical for deducting expenses. Keeping receipts, canceled checks, bills, or other like kind documentation of expense is the first step in creating proper documentation for the expenses. If mileage is being reimbursed, a mileage log that includes the date of travel, mileage, the destination of travel, the business purpose of the trip, and other supporting information should be kept as support for the expense. For de minimis office expenses, business purchases of tangible property that are below the $2,500 threshold,  you will only need to keep record of the business usage if the property is kept at a location other than the company’s place of business (such as a home office). If the property is kept at the company, all use is assumed to be for business purposes.

If travel is a frequent part of the business operations, timely record keeping is considered more reliable than re-creating mileage logs after the fact. There are various mobile phone applications that can be used to track mileage, allowing annotation on the trip to be undertaken promptly. When purchasing travel expense such as hotels, car rentals, or flights, it is best practice to use a company credit card as travel is often looked at for personal travel expenses. Keeping copies of the reason of travel such as a business conference or meeting along with notation of business purpose will aid in properly documenting the expense. One thing to keep in the fore front is the requirement to track the business purpose of any expense. Too often, business expenses appear to be personal in nature and are disallowed without proper documentation. When it comes to proper documentation, there is no such thing as too much proof if the IRS has any doubt regarding the business purpose.

If the company is reimbursing employees, requiring monthly expense reports with the proper documentation is best practice and each report should be kept with the correlated expenses. Having an Accountable Plan that is in compliance with the IRS guidelines as part of the company policies and procedures will allow for the expenses to be deducted by the company without being considered taxable income to the employee. Any reimbursements deemed to be paid without an Accountable Plan are required to be reported on the employee’s W-2 and are taxed on by the employee’s personal return.

Aspects the Accountable Plan needs to include in order to pass IRS scrutiny include:

1) The expense(s) must have a business purpose and were incurred while an employee was performing services in the ordinary course of business for the company; 2) The employee must adequately account to the company by providing detailed information on the expense(s) including the date, time, place, amount of the expense, and the business purpose; 3) Any excess reimbursements paid to an employee must be returned to the company within a reasonable and specified period of time.

Please contact us for more information on the deductibility, how to properly document expenses, and Accountable Plans.

Important Information about the Qualified Business Deduction

By: Linda Fargo, CPA, CGMA- Manager

The 2017 Tax Act, officially named “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” but often referred to as the “Tax Cuts and Jobs Act”, introduced the “Qualified Business Income Deduction” or “QBI Deduction” contained in Internal Revenue Code (IRC) §199A .  The actual name is, however, more symbolic of the complicated and even convoluted way this extremely favorable deduction is calculated. (Fortunately, some of the complications were eliminated in the Consolidated Appropriations Act, 2018 enacted March 23, 2018.)  Recently released proposed regulations add clarity but also raise additional questions.

Since the QBI deduction introduces a whole new set of acronyms, let’s start with a glossary to assist in understanding what they all mean and, hopefully, keeping them straight.

Individual Individual An individual, trust (other than a grantor trust), estate or other person eligible to claim the Code Section 199A deduction.
QTB Qualified Trade or Business A very broad category of business activities, but subject to numerous highly technical requirements and limitations.
TI Taxable Income Defined for QBID only, as TI determined after all above and below the line deductions but without regard to Section 199A.
QBI Qualified Business Income Items of income, gain, deduction and loss from domestic business activities connected with the conduct of a trade or business within the United States. It is not necessary to actively participate.
QBID Qualified Business Income Deduction Generally 20% of QBI subject to certain limitations and thresholds.
SSTB Specified Service Trade or Business Any trade or business involving the performance of services except engineering and architectural services.
IT Initial Threshold TI of $157,500 for single filers and $315,000 for joint filers
MT Maximum Threshold TI of $207,500 for single filers and $415,000 for joint filers
SSTB Limitation Specified Service Trade or Business Limitation Taxpayers with a SSTB can enjoy the QBID only if their TI is less than certain thresholds.  Phases out between the IT and the MT.  Once the MT is reached no QBID is allowed. “Poor Lawyer Exception”
UBIA Unadjusted Basis Immediately After Acquisition Original basis of assets for which the depreciable period is the later of (1) 10 years from the placed-in-service date or (2) the last day of the last full year in the MACRS recovery period, determined without considering the alternative depreciation system (ADS)
W&P Limitation Wage and Property Limitation The greater of 50% of the W-2 wages or the sum of 25% of the W-2 wages plus 2.5% of the UBIA of all qualified property. Phases in between the IT and the MT for non-SSTB. “Good Planner Exception”
CQBIA Combined Qualified Business Income Amount The sum of the QBI for each QTB plus 20% of the aggregate amount of the qualified REIT dividends and qualified publicly traded partnerships (PTP) income of the taxpayer for the taxable year
TIL Taxable Income Limit The QBID is limited the 20% of TI minus capital gains


Brief Overview:

The qualified business income deduction (QBID) is potentially available to all taxpayers with qualified trade or business (QTB) income other than C corporations, including estates and trusts with qualified business income (QBI). Generally, except for non-grantor estates and trusts, the QBID is taken at the individual taxpayer level.  The eligibility list includes individuals operating a QTB through a sole proprietorship (including through a single member LLC), as well as individuals who are owners of pass-through entities, including S corporations, partnerships and grantor trusts.  Basically, any individuals who operate a Schedule C or F business, or who report income from a business activity on Schedule E, may be eligible to claim the to claim the QBI deduction.  The QBI deduction specifically does NOT apply to W-2 wages.

Subject to limitations based on the type of business involved, the amount of wages paid and/or the original purchase price of property placed in service in connection with the business, the QBI deduction is equal to 20% of QBI.

The deduction provided in Code Section 199A(a) is the lesser of: (a) the combined qualified business income amount (CQBIA) (which in many or most cases will be equal or approximately equal to 20% of QBI), or (b) 20% of the excess of taxable income over net capital gains (the “taxable income limitation”).

The basic concept seems deceptively simple.  Unfortunately, as with most tax law, the exceptions, thresholds and limitations can result in some very complex calculations.  Let’s take it step by step.

Step One: Calculate TI

The QBI deduction starts with taxable income (TI).  A taxpayer must first run all his/her tax information through the complex structure of the Internal Revenue Code before beginning to calculate the deduction.  This would include all calculations for passive activity, basis, at risk, bonus depreciation, itemized deductions, etc.

Step Two: Identifying QBI

The first step in computing QBID is identifying qualified business income (QBI) from each of the taxpayer’s Section 162 trades or businesses.  Generally, QBI includes Items of income, gain, deduction and loss from domestic business activities connected with the conduct of a trade or business within the United States. In addition, according to proposed regs, rental or licensing of tangible or intangible property (ex. rental activity) that does not rise to the level of a Code Sec. 162 trade or business is nevertheless treated as a trade or business for purposes of QBID, if the property is rented or licensed to a trade or business which is commonly controlled (self-charged rent).  QBI doesn’t include investment income such as capital gains and losses, dividends, interest income (unless properly allocable to a trade or business), and commodity and foreign currency gains.  QBI specifically excludes reasonable compensation paid to the taxpayer, guaranteed payments and payments to partners acting outside their capacity as a partner.  It also does not include any qualified REIT dividends or qualified publicly traded partnership income come.

A qualified trade or business (QTB) is generally defined as any trade or business other than the business of performing services as an employee or a specified service trade or business (SSTB).

A SSTB is one that involves the performance of services in the in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners.  Engineering and architectural services are specifically excluded. Some commentaries question whether the “reputation or skill” clause might pull engineering and architectural services back into the definition of SSTB.  However, based on the proposed regs, it appears the IRS interprets the “reputation or skill” clause narrowly to apply to endorsements; license of an individual’s image, likeness, voice and the like; and appearance fees.

There is an exception that allows taxpayers with lower income to treat SSTB income as a nonservice business for Section 199A purposes.  However, this exception is only fully available for taxpayers with 2018 taxable income below the initial threshold (IT) of $315,000 if married filing jointly ($157,500 for all others).  The exception is fully phased out when 2018 taxable income is $415,000 or more if married filing jointly ($207,500 for all others).  Taxpayers with income above the maximum threshold (MT) can’t treat any income from a SSTB as QBI.

New proposed regulations provide for a de minimis rule.  If less than 10% (5% for entities with receipt of more than $25 million) of QBI is from an SSTB, it can be ignored, and the entire business is treated as eligible for QBID.  It is unclear if specified service income in excess of 10%/5% taints the whole business or only the specified service income.

QBI losses can be carried forward and treated as a loss from QTB in the next year.  This functions much like the passive activity loss limitation.  According to proposed regs, losses or deductions that were disallowed for tax years beginning before January 1, 2018 are not taken into account for purposes of computing QBI in future years. Code Sec. 199A carryover rules do not affect the deductibility of the losses for purposes of other provisions of the Code.

If a taxpayer has an overall loss after qualified REIT dividends and qualified PTP income are combines, the portion of the individuals QBID related to the qualified REIT dividends and qualified PTP income is zero for the year.  This overall loss does not affect the taxpayer’s QBI but is instead carried forward and used to offset combined REIT dividends and qualified PTP income in the succeeding year(s).  Yet another new tracking requirement!

New proposed regulations state that only losses suspended (suspended basis/at risk/passive activity losses) after 2017 reduce QBI in the future.  Since there is currently no “ordering” to suspended losses, additional tracking will be required.

Step Three: Computing QBID 

Once QBI is identified for each QTB, the next step is computing the deductible for each trade or business.  Generally, the deductible amount is 20% of QBI for each QTB. However additional limits apply for taxpayers with TI above the IT and are phased in completely at the MT.

For taxpayers with TI above the MT, the QBID is limited to the greater of (1) 50% of the W-2 wages paid by the business or (2) 25% of the W-2 wages paid by the business plus 2.5% of the unadjusted basis immediately after acquisition (UBIA) of the business’s qualified property. These limitations, commonly referred to as the wage & property limitation (W&P Limitation), phase in between the same initial and maximum thresholds that apply to the SSTB.

For those taxpayers with TI between the IT and the MT, the phase-in is computed by determining the amount by which 20% of QBI exceeds the W&P Limitation (the excess amount).  The taxpayer’s phased in limit equals the excess amount multiplied by the percentage obtained when dividing the amount of taxable income that exceeds the threshold by $100,000 ($50,000 for non-joint filers).

W-2 Wages. For purposes of the limitation, these are total wages subject to withholding, elective deferrals, and deferred compensation paid by the QTB during its calendar year ending in the taxpayer’s taxable year, provided such compensation is properly allocable to QBI. Additionally, the business must file Form W-2 reporting such wages.

Proposed regs state that, in the case of W-2 wages that are allocable to more than one trade or business (Ex. leased employees or common paymaster), the portion of the W-2 wages allocable to each trade or business is determined in the same proportion to total wages as the deductions associated with those wages are allocated amount the particular trades or businesses.

Notice 2018-64, 2018-35 IRB contains a proposed revenue procedure that sets out 3 methods for calculating W-2 wages.

Also, the proposed regs indicate that there is a W-2 wages-paid limitation for high-income individuals that applies even if the person isn’t engaged in a specified service business.  It caps the deduction at the basic 20% of QBI from the business or, if lower, a figure that looks at W-2 wages paid by the business and the unadjusted basis of tangible, depreciable property used in the business and not fully depreciated.

Qualified Property. For purposes of the limitation, this is depreciable property held by the business and available for use at the end of the year that is used in the production of QBI.  The depreciable period is the later of (1) 10 years from the placed-in-service date or (2) the last day of the last full year in the MACRS recovery period, determined without considering the alternative depreciation system (ADS).  The depreciable period for purposes of QBID is not the same as the depreciation (or recovery) period for income tax purposes. Let’s hope our depreciation software will calculate this for us. If not, this provision could be a logistical nightmare.

In the case of a pass-through entity, each owner is allocated their proportionate share of the W-2 wages and qualified property of the entity.  It has been suggested that partnerships might have the flexibility to cause specific partners to be allocated W-2 wages and unadjusted basis, by making special allocations of wage expenses and depreciation deductions. When preparing pass-through entity tax returns, it will be necessary to gather this information, determine the allocations and to report it on the owners’ K-1s.

The proposed regs clarify that Section 179 and the additional first-year depreciation doesn’t affect the applicable recovery period for QBID purposes.  However, UBIA does reflect the reduction in basis for the percentage of the taxpayer’s use of the property for other than trade in the taxpayer’s trade or business (non-business use).

Proposed regs also explain that if a taxpayer has QBI of less than zero from one trade or business, but has overall QBI greater than zero when all of the taxpayer’s trades or businesses are taken together, then the taxpayer must offset the net income in each trade or business that produced net income with the net loss form each trade or business that produced net loss before the taxpayer applies the W&P limits. The taxpayer must apportion the net loss amount the trade or businesses with positive QBI in proportion to the relative amounts of QBI in such trades or businesses.  Then, for purposes of applying the W&P limitation, the gain or income in respect to each trade or business (as offset by apportioned losses) is the taxpayer’s QBI with respect to that trade or business. The W-2 wages and UBIA of qualified property from the trades or businesses which produced negative QBI are not taken into account for purposes of QBID and are not carried over into subsequent years.

In addition, proposed provide for an elective aggregation regime.  If certain requirements are met, taxpayers who engage in more than one trade or business may – but are not required to – aggregate trades and businesses, treating them as a single trade or business for purposes of applying the W&P limitation.  Once aggregation is chosen, it must be consistently reported in all subsequent years. Annual reporting is required.

These rules are complex and depend on several variables.  The table below summarizes the computation for each of the taxpayer’s QTBs.

Nonservice Business Specified Service Business
Taxable income of $315,000 ($157,500 for non-joint) or less 20% of QBI 20% of QBI
Taxable income greater than $315,000 but less than $415,000 ($157,500/$207,500 for non-joint) Same as above, W&P limitation phase in Amount of income that is QBI is phased out: W&P limitation is phased in
Taxable income of $415,000 ($207,500 for non-joint) or more 20% of QBI subject to the W&P limitation No deductible amount


Step Four: Determining the CQBIA

Once calculated, the QBID for all QTBs are combined with 20% of qualified real estate investment trust (REIT) dividends and qualified PTP income. The W&P limitation does not apply to the REIT and PTP component of the deduction. The result is the combined qualified business income amount (CQBIA).

A qualified REIT dividend is any dividend from a REIT received during the tax year that isn’t a Section 857(b)(3) capital gain dividend income under IRC Sec. 1(h)(11).

Qualified PTP income is the sum of (1) the net amount of the taxpayer’s allocable share of each qualified item of income, gain, deduction, and loss from a Section 7704 PTP that isn’t treated as a corporation for tax purposes and (2) any gain recognized by the taxpayer upon the disposition of a PTP interest to the extent it’s treated as an amount realized from the sale or exchange of property other than a capital gain.

Step Five: Calculating the Final Deduction

The final QBID is the lesser of (1) the CQBIA amount or (2) 20% of the excess, if any, of the TI over the sum of net capital gains and the aggregate amount of qualified cooperative dividends; plus, the lesser of (1) 20% of the aggregate amount of the qualified cooperative dividends for the taxable year, or (2) taxable income reduced by the net capital gain. This is known as the taxable income limit (TIL).

Other Considerations:

Entity Considerations. In the case of an S corporation, the IRS requires that a shareholder receive reasonable compensation from the S corporation for his services.  Neither these wages nor guaranteed payments to partners qualify for QBI.  In contrast, in the case of a business conducted by a sole proprietor or a single member LLC that is treated as a disregarded entity, all the business’s income can be QBI. Also, because of the exclusion of SSTB, it might be beneficial to break down income streams into multiple entities.  However, it appears this can only be done as long as the businesses aren’t under “common control.”

In addition, when you combine a 21% corporate rate, a 100% Section 1202 exclusion for owners of a C corporation, and the uncertainty of a Section 199A deductions for owners of a pass-through entity, business owners might want to take a close look at forming or convert to a C Corporation.

Deduction for Specified Agricultural or Horticultural Cooperatives.  A specified agricultural or horticultural cooperative is entitled to a deduction equal to 9% of the lesser of (1) the “qualified production activities income” of the cooperative for the taxable year or (2) the taxable income of the cooperative for the taxable year (calculated without regard to certain patronage dividends, per-unit retains, and non-patronage distributions.)  Basically, this cooperative-level deduction is very similar to the domestic production deduction (DPAD).  The cooperative will be able to either pass the deduction through to its patrons or retain the deduction for its own use.  As a result, patrons will be unable to definitively calculate their QBID until notified by the cooperative about whether or not the cooperative elected to pass the deductions through to the patrons.

Substantial Understatement Penalty. For a taxpayer claiming the QBID, the 20% accuracy penalty for substantial understatements of income tax applies if the understatement exceeds the lesser of (1) 5% (instead of the usual 10%) of the tax required to be shown on the return, or (2) $5,000.

Filing Status Optimization. The interplay between QBI and TI in a joint versus separately filed return may result in a substantial tax savings to file separately, especially if one of the spouses has high income and the other owns a SSTB.

Planning Opportunities. Given the complexity of the new deduction as well as some other tax law changes, it’s a good idea to get a head start on determining the affects on each individual tax situation in 2018.  We would love to schedule a planning meeting with you.

Your Financial Gatekeeper

How to Obtain Peace of Mind with a Trust Protector

An irrevocable trust makes for a smooth transfer of wealth to family members – with the an additional tax-advantage bonus. However, you must relinquish control of the assets placed within the irrevocable trust while setting it up. What you control from there is who will eventually manage the distribution of wealth and assets after your passing. You appoint the trustee. And if you’re not completely confident that a single trustee will carry out your wishes in full, you can establish a trust protector, as well.

What Does a Trust Protector Do?

A trust protector is essentially the “board of directors” to the designated trustee. The trustee handles the trust on a day-to-day basis, while the protector manages the trustee and helps make critical decisions moving forward, such as high-value investment transactions or the sale of closely held business interests.

There is almost no limit to the powers you can bestow on your designated trust protector. You can allow a trust protector to replace a trustee, to appoint a successor trustee or a successor trust protector, and to approve or veto investment or beneficiary distribution decisions. He or she can also resolve disputes between trustees and beneficiaries.

A Quick Word of Warning

While it may be tempting to provide a protector with a broad range of powers, this may hamper the original trustee’s ability to manage the trust efficiently. Keep in mind that the idea is to protect the integrity of the trust, not to appoint a co-trustee. You don’t want too many cooks in the estate planning kitchen.

Exercising Discretion to Reach Estate Planning Goals

Trust protectors offer a variety of added benefits:

  • A protector with the power to remove and replace the trustee can do so if the trustee develops a conflict of interest or fails to manage the trust assets in the beneficiaries’ best interests.
  • A protector with the power to modify the trust’s terms can correct mistakes in the trust document or clarify ambiguous language.
  • A protector with the power to change the way trust assets are distributed if necessary to achieve your original objectives can help ensure your loved ones are provided for in the way you would have desired.

*These are just a handful of examples showcasing how the appointment of a designated trust protector can help ensure you achieve your estate planning goals.

This Is Not a Light Decision

Picking the perfect trust protector is critical to your estate planning strategy. Given the potential power this person will have over your family’s wealth, you will want to choose someone you have immense trust and confidence in. This person should be qualified to make investment and other financial decisions on your behalf. Many individuals choose to appoint a trusted financial advisor — such as a long-term accountant, attorney or investment advisor — who may not be able or willing to serve as trustee, but can provide an extra layer of protection by monitoring the trustee’s performance.

Contact Holbrook & Manter today if you would like to learn more about incorporating a trust protector into your estate plan.

Grants vs. Contracts: Why it Matters

By: William Bauder, CPA, CGMA, CITP- Manager

Which would you prefer, a grant or a contract? To many, they are both equally good things to have.   Obtaining either a grant or a contract means that your organization has money!  They also both mean that someone recognizes your organization for the value it can provide with the proper funding.  For your accountant however, the difference between the two can be very complex even in a seemingly simple situation.  When the complexities of accounting for these funding sources are paired with the current complexity of the upcoming changes to the revenue recognition rules – the accounting can become nearly impossible to decipher.  However, a hopeful fix for these complexities was just made with the Financial Accounting Standards Board’s (FASB) recent release of Accounting Standard Update (ASU) (No. 2018-08)

The purpose of the release of ASU 2018-08 is to help clarify the difference between a grant and a contract for financial reporting purposes.  Using a decision tree, both parties must first determine if they both are receiving commensurate value (i.e. exchanging items or services of equivalent value).  If it’s determined that an exchange has in fact occurred, the organization should follow the standard revenue recognition guidance.  It should be noted that one item that has often led to inconsistency in practice is the consideration of societal benefits. Societal benefits include general benefits to society based upon the work you are performing. These benefits are specifically excluded from the decision tree and should not be considered as commensurate value for the transacting parties. 

The next step in determining if a transaction should be treated as a grant or contract is to determine whether or not the transaction is considered a contribution (i.e. nonreciprocal). If this is the case, you must then consider if there are any special conditions placed upon the contribution.  Conditions can affect the timing of revenue and expense recognition by the resource recipient and resource provider.  For a contribution to be conditional, the answer to both the following questions is expected to be “yes”:

1.       Does the contributor retain either a right of return to the resource provider or a right of release of promisor from its obligation to transfer resources?

2.       Is there a barrier the not-for-profit (NFP) organization must overcome to be entitled to the resources provided?

To help define a “barrier” the FASB has also provided the following indicators as part of ASU 2018-08:

“The NFP is required to achieve a measurable outcome (e.g., help a specific number of beneficiaries or produce a certain number of units).”

  “The NFP is required to overcome a barrier related to the primary purpose of the agreement. (Note: This excludes trivial or administrative requirements.)”

 “The NFP has limited discretion over how the resources are spent (e.g., a requirement to follow specific guidelines about incurring qualifying expenses).”

If a contribution is determined to be conditional, any funds transferred in advance are to be recognized as a liability and revenue is not to be recognized until all conditions have been substantially met.

If your organization’s accountant has been struggling to fully understand how to implement the new Accounting Standard, ASU 2018-08 should be a helpful tool in clarifying what it will mean to have a grant or contract on your books. Contact us today for more information and assistance.

Make business valuation experts a forethought, not an afterthought

Too often, business valuation experts are hired months after a case is filed or just before it goes to trial. This limits the documents and procedures they can use to perform their analysis. However, you can save significant money, time and frustration by hiring an expert early in the litigation process and asking for relevant information during discovery.

A preferred list of candidates

Do you have a list of experts who are qualified to value a business? Attorneys who deal with corporate litigation or marital dissolution cases need to have a list of credentialed business valuation candidates on hand, so they can act decisively when the need arises.

Meet with your preferred expert at the start of each case. The initial consultation gives attorneys and clients an opportunity to understand the business valuation process and discuss a timeline. This meeting also helps experts understand the nature of the lawsuit and scope of the engagement.

In turn, hiring an expert early helps attorneys draft discovery requests and allows experts sufficient time to analyze relevant data. Plus, naming a preferred expert upfront prevents the opposing side from hiring him or her.

Relevant documents and procedures

Before experts can value a business interest, they need help gathering relevant information, such as:

  • Three to five years of financial statements,
  • Three to five years of income tax returns,
  • Marketing materials,
  • Employment contracts for key employees,
  • Lease agreements and other major contracts,
  • Fixed asset listings,
  • Shareholder agreements,
  • Organizational charts and job descriptions,
  • Information about related parties, and
  • Prior valuations and narratives describing past stock transactions (for example, shareholder buy-ins or buyouts or offers to purchase the business from third parties).

Proactive attorneys include these items in their written discovery requests, especially in adversarial situations. They also may request that their business valuation experts be granted access to the company’s facilities to conduct a site visit and perform a comprehensive management interview within a reasonable time period.

These are critical steps in the valuation process. To help facilitate these procedures and minimize potential disruptions, some attorneys provide a detailed questionnaire for management to complete prior to site visits.

Think outside the box

The list provided here is just a starting point. Other possibilities exist, including information that’s stored electronically or on social media. Comprehensive discovery ends with one final question: Is there anything else my expert should know that might be relevant to valuing this business? If you hire an expert early, you can brainstorm your discovery checklist together. H&M has a team dedicated to the business valuation needs of our clients. Contact us today for  more information. We would be happy to assist you. 

Prepare to Shop: The Sales Tax Holiday Returns!

By: Molly Pensyl, Marketing & Business Development Manager

It is returning just in time for back to school shopping….the Sales Tax Holiday starts on Friday, August 3, 2018 at 12:00 a.m. and runs until Sunday, August 5, 2018 at 11:59 p.m. 

This means Ohio residents have all weekend to save on a variety of items. Here is the breakdown from the Ohio Department of Taxation so you know what to expect when you set out to shop:

 The following will be exempt from sales and use tax during the holiday: 

·         Clothing priced at $75 per item or less;

·         School supplies priced at $20 per item or less; and

·         School instructional material priced at $20 per item or less

The timing of the holiday is no mistake, paving the way for savings to be had before school resumes. Therefore, items used in a trade or business are not exempt under the sales tax holiday.

We will always remind you of the Sales tax holiday, but is it exciting to note that Sub S.B. 226 provided for the holiday to become a permanent fixture on the first Friday, Saturday and Sunday of August each year.

Please let us know if you have any questions and happy shopping!

Is your company overpaying sales and use tax?

It’s a safe bet that state tax authorities will let you know if your business hasn’t paid enough sales and use taxes. But the lines of communication may not be so open if you’re overpaying. For this reason, many businesses use reverse audits to find overpayments so they can seek reimbursements.

In most states, businesses are exempt from sales tax on equipment used in manufacturing or recycling, and many states don’t require them to pay taxes on the utilities and chemicals used in these processes, either. In some states, custom software and other computer equipment are exempt if used for research and development projects. These are just a few examples of potentially available exemptions.

Many companies have sales and use tax compliance systems to guard against overpaying, but if you haven’t reviewed yours recently, check to make sure it’s functioning properly. Employee turnover, business expansion or downsizing, and simple mistakes all can take their toll.

A formal reverse audit can extend across your business, going back as far as the statute of limitations on state tax reviews. If your state auditors can review all records for the four years preceding the audit, for example, the audit could encompass the same timeframe. To be clear, reverse audits are often time consuming and complex. But a well-executed one can not only reap tax fund rewards now, but also help update your compliance systems going forward. Let Holbrook & Manter help you target the exemptions available to your business and ensure refund claims are properly prepared before submittal. 


Double Duty Giving with Charitable Gift Annuities

If you’re charitably inclined, you may wish to consider a charitable gift annuity. It can combine the benefits of an immediate income tax deduction and a lifetime income stream. Furthermore, it allows you to support a favorite charity and reduce the size of your future taxable estate.

A charitable gift annuity is an arrangement in which you make a gift of cash or other property to a charity in exchange for a guaranteed income annuity for life. This is similar to buying an annuity in the commercial marketplace, except that you potentially can claim an immediate charitable deduction for the excess of the value of the property over the value of the annuity.

The payouts will generally be lower than those of a commercial annuity because a portion of your charitable gift annuity investment benefits charity. For you to claim a charitable deduction, the charity must receive at least 10% of the initial net value of the property transferred.

The annuity may be payable to you over your life, or over the joint lives of you and someone you’ve designated (a joint and survivor annuity). The rate of return is typically set at the time of the gift based in part on your age (and, if it’s a joint and survivor annuity, the age of the other person you’ve designated). A portion of each annuity payment is tax-free, because you’re entitled to recover your original investment over your life expectancy.

Your charitable deduction will be less than the total value of your annuity purchase price because the deduction can be claimed for only the present value of the property that the charity will keep after your death. The present value is based on life expectancy and an IRS-prescribed interest rate at the time of purchase of the annuity.

Additional rules and limits apply to charitable gift annuities. Talk with Holbrook & Manter if you’re charitably inclined and would like to know if a charitable gift annuity is right for your estate plan.

Monitor & Measure Through KPIs

By: Danielle Cottle CPA, CGMA- Manager

In a constantly changing business environment, what works for your business today, may not necessarily work tomorrow. To ensure that your business continues to grow and thrive for years to come, you need to be monitoring and measuring your business in order to manage it.  One way to monitor and measure the health of the business is through Key Performance Indicators (KPIs).

KPIs are financial and non-financial measures of activity outcomes that indicate how a business, or process within a business, is performing. The first step is to determine and develop KPIs that are vital to the growth and success of your business. Depending on your industry, location and departments that you are interested in tracking, there are a number of KPI categories that your business may want to measure. For example, here are some categories of KPIs:

·         Product Sales and Service

·         Financial Metrics

·         Marketing Metrics

·         Supply Chain Metrics

·         Customer Satisfaction

·         eCommerce Metrics

·         Healthcare Metrics

·         Retail Metrics

Within each category, you can identify specific KPIs to help you track and analyze the business. For example, under Financial Metrics you could track various ratios such as

·         Current Ratio – The ability of your business to pay all of your financial obligations within a year

·         Working Capital – Measure your business’s financial health by analyzing readily available assets

·         Return on Equity – Measure profitability by examining your ability generate revenue for each shareholder

After identifying and tracking the actual results of the KPIs, you should compare them against your plan. The monitoring of KPIs will help you to proactively identify emerging problems and opportunities and to ensure that you are getting the most out of your business plan. It is typically recommended that KPIs are monitored monthly, but this exercise can vary depending on the individual KPIs determined for the business. KPIs should to be available to the appropriate individuals within your business who can digest the information and make change within the organization accordingly. They shouldn’t sit on the boss’s desk, but should be seen by the people in charge of the operation the KPIs are reporting on. Besides tracking KPIs for business growth, they can also be used to help with retainage of high-performing individuals on your team by getting their buy-in on decisions in order to help move them in the right direction.

Remember, there is always an opportunity for your business to be better! If you aren’t monitoring your actual results regularly you may miss out on the next big opportunity or you may cease to exist. Holbrook & Manter has been utilizing KPI’s for their clients and also for the firm for almost a century as we look to celebrate our 100 year anniversary next year. Let us know how we can help your business!