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

When an inheritance is too good to be true

Most people are genuinely appreciative of inheritances, and who wouldn’t enjoy some unexpected money? But in some cases, it may be too good to be true. While most inherited property is tax-free to the recipient, this isn’t always the case with property that’s considered income in respect of a decedent (IRD). If you have large balances in an IRA or other retirement account — or inherit such assets — IRD can be a significant estate planning issue.

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, such as uncollected payments on an installment note, it’s taxed as such to the beneficiary.

IRD can come from various sources, including unpaid salary, fees, commissions or bonuses, and distributions from traditional IRAs and employer-provided retirement plans. In addition, IRD results from deferred compensation benefits and accrued but unpaid interest, dividends and rent.

The lethal combination of estate and income taxes (and, in some cases, generation-skipping transfer tax) can quickly shrink an inheritance down to a fraction of its original value.

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 and 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 other deductions in that category, the IRD deduction isn’t subject to the 2%-of-adjusted-gross-income floor.

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 ($5.45 million for 2016), 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.

If you receive IRD over a period of years — IRA distributions, for example — the deduction must be spread over the same period. Also, the amount includible in your income is net IRD, which means you should subtract any deductions in respect of a decedent (DRD). DRD includes IRD-related expenses you incur — such as interest, investment advisory fees or broker commissions — that the deceased could have deducted had he or she paid them. Thus, to minimize IRD, it’s important to keep thorough records of any related expenses.

Be prepared

As you can see, IRD assets can result in an unpleasant tax surprise. Because these assets are treated differently from other assets for estate planning purposes, you should partner with a CPA that is experienced in this area to make sure your plan is in the correct order. Together we can identify IRD assets and determine their tax implications. Contact us today.

Zac Anderson Joins the H&M Team

The Holbrook & Manter team continues to grow with the addition of Zac Anderson. Zac joins us a staff accountant. He is a native of the Cincinnati area and a graduate of The Ohio State University with a degree in business administration with a specialization in accounting.

Zac’s professional background includes serving as an intern with Deloitte and the Ohio Department of Taxation. He also previously worked for Kimball Midwest in Columbus, Ohio. He is excited to be returning to public accounting and looks forward to providing excellent service to H&M clients.

Zac and his wife live in Upper Arlington and they enjoy exploring the city and trying new restaurants. He loves the outdoors and enjoys activities such as hiking.

Welcome to the firm, Zac!

 

New Staff Accountant Joins the H&M Team

 

The growth continues at Holbrook & Manter with the hiring of Annamarie DePrey. Annamarie has joined us as a staff accountant and will be working in our Marion office.

Annamarie is armed with over 20 years of accounting experience and enjoys working with business owners. She shares the following information about herself:

I was born and raised in Waldo, Ohio. I moved to Columbus and received my degree from The Ohio State University. 11 years later we decided to move back to Waldo and raise our family. We still reside in Waldo where my husband built a house near the family farm. We have three children, Evon, Nathon and Lydia. Evon is a senior at the University of Toledo. Nathon is a sophomore at the University of Northwestern Ohio and Lydia is a senior in high school. In my spare time I enjoy attending sporting events for my children and I am an avid OSU sports fan.

Welcome to the team, Annamarie!

Are you sure you want to take that 401(k) loan?

It can be hard to resist- the urge to splurge on a large purchase. Perhaps it is a trip or a new car- whatever the temptation might be, if you’ve pondered dipping into your 401(k) account for the money, make sure you’re aware of the consequences, many of them tax-related,  before you take out the loan.

Pros and cons

Many 401(k) plans allow participants to borrow as much as 50% of their vested account balances, up to $50,000. These loans are attractive because:

  • They’re easy to get (no income or credit score requirements),
  • There’s minimal paperwork,
  • Interest rates are low, and
  • You pay interest back into your 401(k) rather than to a bank.

Yet, despite their appeal, 401(k) loans present significant risks. Although you pay the interest to yourself, you lose the benefits of tax-deferred compounding on the money you borrow.

You may have to reduce or eliminate 401(k) contributions during the loan term, either because you can’t afford to contribute or because your plan prohibits contributions while a loan is outstanding. Either way, you lose any future earnings and employer matches you would have enjoyed on those contributions.

Loans, unless used for a personal residence, must be repaid within five years. Generally, the loan terms must include level amortization, which consists of principal and interest, and payments must be made no less frequently than quarterly.

Additionally, if you’re laid off, you’ll have to pay the outstanding balance quickly — typically within 30 to 90 days. Otherwise, the amount you owe will be treated as a distribution subject to income taxes and, if you’re under age 59½, a 10% early withdrawal penalty.

Hardship withdrawals

If you need the money for emergency purposes, rather than recreational ones, determine whether your plan offers a hardship withdrawal. Some plans allow these to pay certain expenses related to medical care, college, funerals and home ownership — such as first-time home purchase costs and expenses necessary to avoid eviction or mortgage foreclosure.

Even if your plan allows such withdrawals, you may have to show that you’ve exhausted all other resources. Also, the amounts you withdraw will be subject to income taxes and, except for certain medical expenses or if you’re over age 59½, a 10% early withdrawal penalty.

Like plan loans, hardship withdrawals are costly. In addition to owing taxes and possibly penalties, you lose future tax-deferred earnings on the withdrawn amounts. But, unlike a loan, hardship withdrawals need not be paid back. And you won’t risk any unpleasant tax surprises should you lose your job.

The right move

Generally, you should borrow or take hardship withdrawals from a 401(k) only in emergencies or when no other financing options exist (and your job is secure). For help deciding whether such a loan would be right for you and what your options will mean for your tax wise, please call us. We would be happy to assist you.

Ohio’s Sales Tax Holiday Returns

 

By: Molly Pensyl, Business Development Manager 

Just in time for back-to-school shopping- Ohio’s “Sales Tax Holiday” returns this week! Thank goodness for shopping venues that are open late or even around the clock because the holiday kicks off at midnight on Friday, August 5, 2016 and ends on Sunday, August 7, 2016 at 11:59pm.  The following items will be exempt from sales and use tax during that time frame: 

Clothing priced at $75 per item or less
School supplies priced at $20 per item or less
School instructional material priced at $20 per item or less

Keep in mind, items used in a trade or business are not exempt under the sales tax holiday. The Ohio Department of Taxation answers some frequently asked questions about the holiday on their website. Click here to review them so you are informed when you go out armed with your credit cards-ready to do some tax-free damage.

 http://www.tax.ohio.gov/sales_and_use/salestaxholiday/holidayfaq.aspx

H&M Welcomes New Staff Accountant

 

The growth continues for Holbrook & Manter, CPAs with the hiring of Jordan Matulevich. Jordan has joined the firm as a staff accountant and will work out of our Columbus office.

Jordan is from Cranberry Township, Pennsylvania. He holds a degree in accounting and finance from Slippery Rock University, where he was active in the business fraternity and accounting club.

Jordan currently lives in Upper Arlington and enjoys visiting local restaurants. He also enjoys sports and states that he is a Pittsburgh Steelers fan.

Jordan is excited to provide quality client service to the family-owned and closely held businesses that H&M works with. Welcome to the firm, Jordan!

Assistance with 501(c)(3) Tax Exemption Filings

 

 

 

 

 

By: Shannon Robinson, CPA, Senior Assistant Accountant 

We have been helping a number of clients with their 501 (c) (3) tax exemption filings. There are several bases to cover and items to attach to the application so we thought we would blog about the specifics to keep you better informed.

The form / application to be completed for this filing is IRS Form 1023.  We suggest that if your organization does not already have some items such as the articles of organization and bylaws that you work with an attorney on these prior to completing the application.

Also, if your organization expects gross receipts to be less than $50,000 in the next three years and you do not have total assets in excess of $250,000 you may be eligible to file form 1023-EZ which is a much simpler form that can be completed online and can be approved within days.  There is a form 1023-EZ eligibility worksheet to determine if you meet the requirements to file the EZ form.

Below is a selection of items from the list that are needed to complete the application process:

  • Application
    • Form 1023 Checklist
    • Application (Form 1023 and Schedules A through H, as required)
    • Articles of organization
    • Amendments to articles or organization in chronological order
    • Bylaws or other rules of operation and amendments
  • User fee payment
  • Employer Identification Number (EIN)
  • Completed parts I through XI of the application, including any requested information and any required schedules A through H.
    • Must provide specific details about your past, present, and planned activities.
    • Describe your purposes and proposed activities in specific easily understood terms.
    • Financial information should correspond with proposed activities.
  • An exact copy of your complete articles of organization.
  • Signature of an officer, director, trustee, or other official who is authorized to sign

H&M can sit down with you and go over this list to get you started. We are also available to answer any questions you have during the process.  Then once you have all of the necessary information gathered,  we will sit down with you and do a final review to make sure all documentation appears to be in line before you submit your application for approval.  Once filed, the approval of the application could take 2 to 6 months.

H&M’s Stephen Smith Contributes to E-Book Focused on Assisting Small Business Owners

FOR IMMEDIATE RELEASE

Holbrook & Manter, CPAs Professional Services Firm with offices in Columbus, Dublin, Marion and Marysville is proud to announce that Stephen Smith, CPA, CGMA, MBA, CVA recently served as an expert source for an E-Book published on www.AccountingWEB.com

Written by Deanna C. White, the E-Book is entitled, “What Your Clients Really Want” and is designed to educate those in the accounting profession about the ever-changing needs of the small business owner. Stephen’s experience in this area positioned him to serve as a source that is sited heavily throughout the publication. His quotes help bring the topics of compliance, cash flow, technology and more to life throughout the E-Book, which can be downloaded at this link:

https://www.accountingweb.com/resources/what-your-clients-really-want

As stated on their website: AccountingWEB is the leading online community for CPAs in the United States, providing news, software tools and guidance from top industry voices. We aim to inspire the modern accountant to embrace new ideas, develop, grow and make changes that matter.

Holbrook & Manter, CPAs is a professional services firm specializing in family and closely held businesses. Since its origination in 1919, H&M has been dedicated to providing superior accounting, tax and management consulting advice to both businesses and individuals. Holbrook & Manter, CPAs provides cost effective, high quality technical service combined with sound personal attention. They are able to serve clients in virtually all areas of business, including those that require specialized expertise.

H&M is a member of Allinial Global, an association of legally independent accounting and consulting firms who share education, marketing resources and technical knowledge in a wide range of industries.

Please visit the following sites to learn more about our service offerings and areas of expertise:

www.HolbrookManter.com

www.BusinessAccountingServicesOhio.com

www.SOCAuditServices.com

For press inquiries, please contact:

Molly Pensyl, Business Development Manager

MPensyl@HolbrookManter.com

 

Be Prepared for the New Overtime Rule

The final overtime rule goes into effect on December 1, 2016. All employers should be aware of the specifics of the new rule and preparations for these changes should be well underway. We continue to field questions on this topic and turned to our firm’s Senior Administrative Manager, Sherry Keller to share more specifics on this very important topic. Here is what Sherry has to say:

What is overtime?

Unless specifically exempted, employees covered by the FLSA must receive pay for hours worked in excess of 40 hours in a workweek at a rate not less than one and one-half their regular rate of pay.

What determines if an employee falls within one of the white collar exemptions?

1. Be salaried (meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.

2.  Be paid more than a specified salary level , which is $913 per week (equivalent of $47,476 annually)

3.  Primarily perform executive, administrative or professional duties (as defined  in the Department’s “duties test”)

What are the significant changes to the overtime regulations for white collared salaried workers?

For the first time, employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level, provided these payments are made on a quarterly or more frequent basis

How will employers implement the updated salary level requirement established in the final rule?

Employer have a range of options for responding to the updated standard salary level.  For each affected employee newly entitled to overtime pay, employers may:

  • Increase salary of an employee who meets the duties test to at least the new salary level  to retain his or her exempt status;
  • Pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked (over 40 hours within one work week)
  • Reduce or eliminate overtime hours
  • Reduce the amount of any pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime hours worked over 40 in the workweek, to hold total weekly pay constant
  • Or use a combination of these responses.

Please contact Holbrook & Manter today with any questions you may have. It would be our pleasure to help you prepare ahead of the new rule taking effect. You can also find more information on the U.S. Department of labor website by clicking here: https://www.dol.gov/featured/overtime

Sherry Keller, H&M Senior Administrative Manager