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

Handling Estimated Tax Payments

In today’s economy, many individuals are self-employed. Others generate income from interest, rent or dividends. If these circumstances sound familiar, you might be at risk of penalties if you don’t pay enough tax during the year through estimated tax payments and withholding. Here are three strategies to help avoid underpayment penalties:

1.      Know the minimum payment rules. For you to avoid penalties, your estimated payments and withholding must equal at least:

1.) 90% of you tax liability for the year,

2.) 110% of your tax for the previous year, or

3.) 100% of your tax for the previous year if your adjusted gross income for the previous year was $150,000 or less ($75,000 or less if married filing separately).

2.      Use the annualized income installment method. This method often benefits taxpayers who have large variability in income by month due to bonuses, investment gains and losses, or seasonal income — especially if it’s skewed toward year end. Annualizing calculates the tax due based on income, gains, losses and deductions through each “quarterly” estimated tax period.

3.      Estimate your tax liability and increase withholding. If, as year end approaches, you determine you’ve underpaid, consider having the tax shortfall withheld from your salary or year-end bonus by December 31. Because withholding is considered to have been paid ratably throughout the year, this is often a better strategy than making up the difference with an increased quarterly tax payment, which may trigger penalties for earlier quarters.

Finally, beware that you also could incur interest and penalties if you’re subject to the additional 0.9% Medicare tax and it isn’t withheld from your pay and you don’t make sufficient estimated tax payments. Please contact us for assistance with your estimated tax payments. Don’t play a guessing game with this tricky but very important task.

Trust & Estate Planning: Drafting a Letter of Instructions

When you draft an estate plan, the centerpiece is your will or living trust. Such a document determines who gets what, where, when and how, as well as tying up the loose ends of your estate. A valid will or living trust can be supplemented by other legally binding documents, such as trusts (or additional trusts), powers of attorney and health care directives.

But there’s still a place at the table for a document that has absolutely no legal authority: a “letter of instructions” to your heirs. This informal letter can provide valuable guidance and act as a road map to the rest of your estate.

Taking inventory

Begin your letter of instructions by stating the location of your will or living trust. Then create an inventory of all your assets and include their location, any account numbers and relevant contact information. This may include, but isn’t necessarily limited to, checking and savings accounts, 401(k) plans and IRAs, health insurance policies, business insurance, life and disability income insurance, stocks, bonds, mutual funds and other investments, and any tangible assets your heirs may not readily find.

The contact information should include the names, phone numbers and addresses (including emails) of the professionals handling your financial accounts and paperwork, such as an attorney, CPA, banker, life insurance agent and stockbroker. Also, list the beneficiaries of retirement plans, IRAs and insurance policies and their contact information.

Guidance for personal preferences

A letter of instructions is more than just a listing of assets and their locations. Typically, it will include other items of a personal nature, such as funeral, burial or cremation arrangements, accounting of fees paid for cemetery plots or mausoleums, the names, addresses and telephone numbers of people and organizations to be notified upon death, and specific instructions for handling personal and financial affairs after you’re gone.

The letter can also expand on instructions in a living will or other health care directive. For example, it might provide additional details about the decision for being taken off life support systems. It may also cover charitable contributions you wish to be made after death or the manner in which property should be donated to charity.

Putting pen to paper

As you’re writing your letter, bear in mind that there are no legal requirements backing it. And just like a will or living trust, the letter should be updated periodically to reflect significant changes in your life. Finally, keep the letter in a safe place where the people whom you want to read it can easily find it. Contact us if you have questions about a letter of instructions.

Keep your SOX Fresh!

By: Dave Gruber, CPA- Director, Risk Advisory Services

The Sarbanes-Oxley Act of 2002 (often shortened to SOX ) is legislation passed by the U.S. Congress to protect shareholders and the general public from accounting errors and fraudulent practice on the enterprise, as well as improve the accuracy of corporate disclosures.  Section 404 of Sarbanes-Oxley mandates public companies to issue an internal control report that contains management’s assertions regarding the effectiveness of the company’s internal control structure and procedures over financial reporting.  The steps leading to the company’s assessment can include:

·         Documenting the company’s processes through narratives, flowcharts, and / or matrices

·         Identifying and documenting the key controls present to prevent financial statement errors

·         Evaluating the design of the key controls

·         Perform testing on the effectiveness of the key controls

·         Evaluating the results of the testing

This compliance work of documenting and testing the internal control structure can be an arduous task. SOX  is no longer in its infancy – large companies have been performing SOX work for over 14 years.  Like with most things in life, after you have been doing things so long, it can be easy to fall into the trap of doing things “the way we always have”.  With SOX procedures, this could mean assuming things have not changed from the prior year and continue on with the documentation and test procedures “the way we always have”.  To combat this complacency, the following items are just some of the things that can be done prior to starting your SOX compliance project to insure there is a fresh and complete approach to your SOX compliance on an annual basis:

·         Hold a detailed planning meeting:

-Have there been any major changes in the business that could have an effect on the control environment:

-Major acquisitions?

-Shift in business model?

-Changes in the economy and / or industry?

-Increase / decrease in division profitability?

-Any change in major customers?

-Have there been any changes in scope?

-Any changes in key personnel?


·         Conduct a detailed review of the processes from a “fresh set of eyes” concept, including:

- Walk throughs of the documentation with the process owners, noting changes, where necessary

-Re-evaluate the design of the key controls

-Update test plans, as necessary

Making the above items an integral part of your Sarbanes-Oxley compliance project can help keep your SOX “fresh”! Contact me today for more information regarding SOX compliance. I would be happy to help.

Maneuvering though the Medicare Maze

Maneuvering though the Medicare Maze

Part 1: Overview

Medicare is health insurance for people 65 or older, people under 65 with certain disabilities, and people of any age with End-Stage Renal Disease (ESRD) but it works like no other insurance you have known.  Medicare is not a one-size-fits all system.  Rather, it is made up of several parts with each part covering different aspects of health care costs.  There are many decisions to be made and much to understand with regards to deciding if and/or when to sign up for the various parts of Medicare.  There are also various deadlines for enrollment for the various parts with potentially expensive and permanent penalties for failing to meet them.

A good place to start is an overview of the various parts and what they cover:

Medicare Part A (Hospital Insurance) helps cover:

  • Inpatient care in hospitals and certain limited skilled nursing facility care
    • Services of professional nurses
    • Semiprivate room
    • Meals
    • Other services provided directly by the hospital or nursing facility including lab test, prescription drugs, medical appliances and supplies and rehabilitation therapy
    • Hospice care
    • Home health care

Medicare Part A might more accurately be called coverage primarily for nursing care. It does not cover the services received from doctors, surgeons, or anesthetists while in a health care facility.  It also does not cover custodial or long-term inpatient care in a skilled nursing facility.

The vast majority of people in Medicare are eligible for Part A at no cost for premiums.  It is essentially paid for in advance by the Medicare payroll taxes contributed from earnings while working. It is “free” unless the enrollee or their spouse has not accumulated 10 years of work credits in Social Security.  Those without enough work credits will pay a premium for Part A coverage. However, Part A services are not free.  The patient is responsible for deductibles and co-payments for specific services.

Medicare Part B (Medical Insurance) helps cover:

  • Medically necessary services from doctors and other health care providers
  • Outpatient care
  • Some inpatient care when patients are placed under observation instead of being formally admitted
  • Approved Home health care not covered by Part A
  • Durable medical equipment
  • A wide range of preventive healthcare services (with little or no cost)

Unless income is low enough to qualify for assistance from the resident state, enrollees must pay a monthly premium to receive Part B services.  If modified adjusted gross income as reported on the enrollee’s IRS tax return 2 years ago was above a certain amount the enrollee may be required to pay more.

If yearly modified adjusted gross income in 2015 was:

File individual tax return File joint tax return File married & separate Monthly premium in 2017
$85,000 or less $170,000 or less $85,000 or less $134
Above $85000 up to $107,000 Above $170,000 up to $214,000 N/A $187.50
Above $107,000 up to $160,000 Above $214,000 up to $320,000 N/A $267.90
Above $160,00 up to $214,000 Above $320,000 up to $428,000 Above $85,000 up to $129,000 $348.30
Above $214,000 Above $428,000 Above $129,000 $428.60


In addition to the monthly premium the enrollee pays a share of the cost of most Part B service.  This amount is almost always 20% of the Medicare approved cost.

A person must be a U. S. citizen or be lawfully present in the U.S. to get Medicare-covered Part A and/or Part services.

Part A and Part B together form what is known as traditional or original Medicare.  The other parts make up fee-for-service Medicare.

The enrollee can decline Medicare B coverage if they have other health insurance that meets Medicare requirements.  If the other coverage is lost, he/she can enroll in Medicare Part B with no penalty if application is made on a timely basis.

Medicare Part C (Medicare Advantage):

Medicare Part C is also called fee-for service Medicare. This is a Health Maintenance Organization (HMO) type coverage.

  • Includes all benefits and services covered under Part A and Part B
  • Usually includes Medicare prescription drug coverage (Part D) as part of the plan
  • Run by Medicare-approved private insurance companies that follow rules set by Medicare
  • May include extra benefits and services for an extra cost

Medicare Part D (Medicare prescription drug coverage):

This is optional Medicare coverage and usually requires a premium.

  • Helps cover the cost of prescription drugs
  • Run by Medicare-approved private insurance companies that follow rules set by Medicare
  • May help lower prescription drug costs and help protect against higher costs in the future
  • Generally an HMO or PPO

Medicare Supplement Insurance (Medigap):

Original Medicare pays for many, but not all, health services and supplies.  Medicare Supplement Insurance policies, sold by private companies, can help pay some of the health care costs that traditional Medicare doesn’t cover, like copayments, coinsurance and deductibles.

Every Medigap policy must follow federal and state laws and must be clearly identified as “Medicare Supplement Insurance”.  Insurance companies can sell only a “standardized” policy.  All policies offer the same basic benefits, but some offer additional benefits so you can choose which one meets your needs.

  • The enrollee must have Part A and B
  • There are monthly premiums
  • Covers only one person
  • Can’t have prescription coverage in the Medigap plan and also have Part D
  • Costs can vary and may go up with age
  • Good all over the country when using doctors and other providers who accept Medicare payment

Posted in News

The Basics of a Dynasty Trust

With a properly executed estate plan, your wealth can be enjoyed by your children and even their children. But did you know that by using a dynasty trust you can extend the estate tax benefits for several generations, and perhaps indefinitely? A dynasty trust can protect your wealth from gift, estate and generation-skipping transfer (GST) taxes and help you leave a lasting legacy.

Dynasty trust in action

Transfers that skip a generation — such as gifts or bequests to grandchildren or other individuals two or more generations below you, as well as certain trust distributions — are generally considered to be GSTs and subject to the GST tax (on top of any applicable gift or estate tax). However, you can make GSTs up to the $5.49 million (in 2017) GST exemption free of GST tax.

Your contributions to a dynasty trust will be considered taxable gifts, but you can minimize or avoid gift taxes by applying your lifetime gift tax exemption — also $5.49 million in 2017.

After you fund the trust, the assets can grow and compound indefinitely. The trust makes distributions to your children, grandchildren and future descendants according to criteria you establish. So long as your beneficiaries don’t gain control over the trust, the undistributed assets will bypass their taxable estates.

Enhancing the benefits

To increase the benefit to future generations, you can structure the trust as a grantor trust so that you pay any taxes on the trust’s income. The assets will then be free to grow without being eroded by taxes (at least during your lifetime).

Also consider further leveraging your GST tax exemption by funding the dynasty trust with life insurance policies or property that’s expected to appreciate significantly in value. So long as your exemptions cover the value of your contributions, any future growth will be sheltered from GST tax, as well as gift and estate tax.

Is a dynasty trust right for you?

If establishing a lasting legacy is an estate planning goal, a dynasty trust may be the right vehicle for you. Even if an estate and GST tax repeal is passed as part of the GOP’s proposed tax reform legislation, the repeal might be only temporary. So this planning technique could still make sense. Before you take action, consult with Holbrook & Manter, because a dynasty trust can be complicated to set up. We’ll also keep you apprised of any legislative news regarding an estate and GST tax repeal.

Bonus depreciation – when is the right time to elect out of it?

By: Dave Herbe, CPA- Senior Accountant

Bonus depreciation (or as we tax geeks refer to it- Section 168 depreciation) can be a very beneficial thing for most businesses. Bonus depreciation can be taken on new assets placed in service in the current tax year. Bonus depreciation allows for an accelerated deduction of 50% of the assets original cost. This can lower your taxable income by a significant amount and save on taxes. However, there are some instances when electing out of bonus depreciation makes sense.

One of the biggest factors of electing out of bonus depreciation would be whether or not your company plans to make money for the year. If you are forecasting a loss for the current year, it may make sense to elect out of bonus. The reason that it makes sense is that in future years if you expect to be back in an income position, you can defer the depreciation expense into future tax years to help offset that income with additional depreciation expense. If you were to take the bonus depreciation in the year of the loss, it would only increase your loss and the benefit of the depreciation expense would be diminished in future years.

The entity type of the business also comes into play when determining if you should elect out of bonus depreciation or not. As a C-Corp there could be different impacts on your tax return versus that of a flow through entity (s-corps and partnerships). The impact on a flow through entity would be determined at the individual level. With individual returns, there could be factors from outside investments or income separate from the business entity that would go into determining if you should be electing out of bonus depreciation for qualifying assets.

This is a huge tax planning tool that can lead to significant tax dollar savings. The Holbrook and Manter tax team is very knowledgeable on this subject matter and can assist in any tax planning areas that you may need. Please contact us today.

Manufacturers and Accounting Software

By: Danielle Cottle, CPA, CGMA- Manager

Holbrook & Manter’s Team is proficient in a number of accounting software. We can assist your manufacturing business no matter what platform you choose to use. QuickBooks products continue to be popular among business owners. QuickBooks offers several versions of their product on both desktop software and online platforms. While the desktop versions of Premier and Enterprise are customized to several industries, we have seen an uptick in use of the products with manufacturers.

There are many reasons why our clients in the manufacturing industry enjoy using QuickBooks. Some of them include:

·         They can manage inventory (by location, unit of measure, serial number, etc.)

·         They can track inventory by using a mobile inventory barcode scanner.

·         They can print a physical inventory worksheet to use for month end or annual count.

·         They can create assemblies from individual components to finished goods

·         They can view stock status reports to see which items need reordered and set up automatic reorder points

·         The business owner can track customer orders from estimate to final invoice

·         They enjoy creating customizable reports to see revenue and costs by job

·         They can review the profitability by product report to see which products are the most profitable.

·         The software is easy to set up and use while keeping costs down.

If the QuickBooks products aren’t robust enough for your manufacturing and inventory needs, several of our clients work with third-party software’s that integrate with QuickBooks to give them the full functionality and reporting needed. No matter what route you take, our team would love to partner with you as you select software that best fits your needs. Contact us today for more information.

H&M Celebrates Manufacturing Day

By: Molly Pensyl, Marketing & Business Development Manager

Today is Manufacturing Day, something our firm always celebrates each year. We are fortunate enough to partner with a number of manufacturers to assist them with accounting and management advisory services. Serving manufacturing clients has been a part of our firm’s fabric for decades.

Manufacturing Day is produced by the National Association of Manufacturers. It is held each year on the first Friday in October to celebrate modern manufacturing. The day is meant to inspire the next generation of those to enter the industry.

A few of our team members who frequently service H&M manufacturing clients answered some questions about the industry in honor of MFG Day.

What makes working with manufacturers enjoyable for your?

William Bauder: I enjoy working with our manufacturing clients because, personally, I enjoy watching the process of items being made.  I love to tour the plants and observe the process. 

Danille Cottle: Being able to see the manufacturing process happen by taking a tour of our client’s facilities is exciting to watch. All of the parts, labor and automation used in the process are unique for each client and I enjoy seeing the process through from start to finish.

Stephen Smith: I simply enjoy the whole process and have a great deal of respect for the industry. I am always amazed whenever I visit/tour our manufacturing clients and witness how they achieve all that they do. The ingenuity, ownership of the process, passion for the product, as well as pride of deliverable is always front and center.  I think people would be surprised to see the amount of hours and dedication put into the final product they are creating and it always shows.

What is one thing about the manufacturing business that you have encountered that you think others would be surprised to know?

William Bauder: Often times we are working with local manufacturers, but, it is important to remember that their customers and their competition are often global in nature.  Not only are our clients worried about other manufacturers in the US undercutting prices or competing for the same skilled labor, but, so is the international market.

Danielle Cottle: I think people would be surprised to see the amount of hours and dedication put into the final product they are creating and it always shows!

Stephen Smith: Manufacturing is the backbone of American business, which holds true here in Ohio and especially in our region. It is ever changing and evolving and many aren’t aware of the new raw materials being invented, new ways of doing things that are being developed and the automation and robotics being used to drive efficiencies. The production process in-between the inputs and product outputs is continuously changing for the better.

H&M looks forward to many more years of working with those in manufacturing and joins with everyone in the industry celebrating today. To learn more about MFG Day, visit the official website here: www.mfgday.com

       Danielle Cottle

      William Bauder

      Stephen Smith




The Tax Consequences of Selling the Wrong Block of the Same Stock

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

Many people have a favorite stock or stocks that they accumulate of over time in multiple blocks. Whatever the stock that is bought, it is important for the owner to have a selling strategy in place if they plan to sell only some of the same stock that they have accumulated.

The IRS assumes by Federal Regulation that if a person sells a stock that they have bought on multiple occasions, the first stocks they purchased are the first ones to be sold. This is something known as the FIFO method (First-In-First-Out). See 26 CFR § 1.1012-1. While the FIFO method may be advantageous as it will most likely result in long term capital gains treatment at lower rates (for stocks held for more than one year), it may result an unnecessarily high long term capital gains tax bill.  Let me illustrate by example.

Bob purchased stock in XYZ Corporation in blocks of 1000 shares on two separate occasions.  The first block purchased on January 1, 2014 at $10.00 per share, resulting in a basis of $10,000 ($10.00 times 1000 shares). The second block of 1,000 shares is purchased on January 1, 2015 at $20.00 per share, resulting in a basis of $20,000 ($20.00 times 1,000 shares). On September 1, 2017, Bob decides that he wants to sell half of his stock because the value of the stock is now at $30.00 per share. Bob instructs his broker to sell 10,000 shares of his stock without specifying which block of stock that he wants to sell. By default under the FIFO method, the first block of 1000 shares purchase is sold resulting in gross proceeds of $30,000 ($30.00 times 1000 shares). For tax purposes, under the FIFO method, the basis of $10,000 for the first block of stock is subtracted from the gross proceeds of $30,000 for a $20,000 long term capital gain.  Assuming the highest long term capital gains tax rate of 20%, this results in a long term capital gains tax of $4000 (20% times $20,000). Had Bob contacted his broker and specifically directed them to sell his second block of 100 shares purchased at $20.00 per share ($20,000 basis), the amount of the long term capital gain would have been lower as the basis of the second block of stock was higher. In this case, the $20,000 basis is subtracted from the gross proceeds of $30,000 resulting in a long term capital gain of $10,000 Assuming again a 20% capital gains tax rate, this sale would only result in a long term capital gain tax of $2000 (20% times $10,000) compared to $4000.

If Bob wants to sell the second block of stock, not only does he need to specify to the broker that he wants the second block of stock sold, but the broker needs to confirm that specification in writing to Bob (See 26 CFR § 1.1012-1(c)(2) and (3)(i)).

For anyone to be prepared for the situation that Bob is in, it is important for them to be in contact with their broker to ensure that the proper procedures and documentation are done so that the desired block of stock is sold and resulting tax treatment are guaranteed. A broker should be able easily assist you and answer any questions you may have. As for tax planning, Holbrook & Manter will work with you to create a tax strategy that is advantageous to your needs.

Are you Subject to Underpayment Penalties?

By: Bryan Davidson, CPA- Tax Manager

Have you switched jobs in the past year?  Did you start a business?  Do you own interest in a pass-through entity? Did you reduce your withholding?  These are all scenarios that could result in underpayment penalties come next April.  The penalty is avoidable if any of the following tests are met.  They are:

1.       Small Balance Due. If after deducting your withholding from your total tax you owe less than $1,000 then there is no penalty applied.

2.       No Prior-year Tax. If you had no prior year tax liability and was a U.S. citizen or resident for the entire year then no penalty would apply for the next year.

3.       Exception 1 – Using Prior Year Tax.  If you paid through withholding and timely estimates 100% of your prior year tax then no penalty will be assessed.  If your AGI for the prior year was greater than $150,000 then 110% of your prior year tax must be paid in.

4.       Exception 2 – 90% of Current Year Tax.  If you paid through withholding and timely estimates 90% of your total current year tax then no penalties will be assessed.

5.       Exception 3 – Annualized Method.  If you paid through withholding and timely estimates 90% of your current year tax.  The total income for the year is broken down by year-to-date for each quarter and applied to estimates. 

All of these tests can be applied to a taxpayer and the one with the smallest penalty can be used.  These tests can also be used for planning.  If you know of a particular change in your income for the coming year and wish to owe little or no tax in April we can base estimates on that information.  The estimates and penalties are also based on quarterly due dates.  If your tax situation has changed since the prior year we can prepare estimates for the remainder of the year that will reduce your penalties.