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

Know about IRD if you have received an inheritance

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

IRD explained

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

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

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

What recipients can do

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

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

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

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

Be prepared

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

Do you know where you live?

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

Growing up in the Columbus area, I remember where I grew up.  I went to Worthington Schools, but lived in the city of Columbus. I had a Dublin telephone exchange, but a Worthington mailing address (zip code 43085) that sometime in the middle of my childhood changed to a West Worthington/Columbus mailing address (zip code 43235) all without me or my family moving.  Sound familiar?  Many people I have known in the Columbus area have been through this situation at least once in their lives.  Although I have always found this a bit amusing, if not confusing, not knowing all of those finer details can have unintended tax consequences.

Let’s use my childhood situation from above to illustrate real consequences of not knowing. After landing a job, I go in for my first day of work.  At that time not only am I meeting everyone, but I am asked to fill out all of the paperwork so my employer can properly take out the right amount of taxes.  After submitting my paperwork to my new employer they process it.  They see that I have a Worthington mailing address and automatically assume that they should be taking out city income tax for Worthington. What they do not know is that is simply a mailing address and not the city that I live in which is Columbus.  Unless this error is caught early, two things will happen, Worthington will get income tax withholding that they are not entitled to and Columbus will not get the income tax withholding they should.  Both things will cause headaches for you and your employer.

The best thing you can do is be proactive and know where you live.  Don’t assume that your employer knows where you live. To help everyone, there is an easy resource available online. The Ohio Department of Taxation knows exactly where you live and has made their resource database available to the public.  This site tells you what municipality you live in (or do not live in for those who live in unincorporated areas) and what local and school district income taxes are to be paid. Go to: https://thefinder.tax.ohio.gov/streamlinesalestaxweb/AddressLookup/LookupByAddress.aspx?taxType=Municipal and plug in your address to find out exactly where you live and which cities and school district you owe income taxes. This resource is also excellent for those who are starting a business and need to know who they owe taxes to.

 

When preparing tax returns for clients at Holbrook & Manter we have encountered situations many times were a client’s employer has not been withholding for the proper city or have been withholding taxes for the wrong city. Unfortunately, it is not as uncommon as you would hope. If you discover that the a city has been receiving money they are not supposed to, you can get that money back, but don’t wait too long or you will be limited on the amount you can get. At Holbrook & Manter we are prepared to assist you with all of your tax needs and questions.

 

Four estate planning techniques for blended families

Today, it’s not unusual for a family to include children from prior marriages. These “blended” families can create estate planning complications that may lead to challenges in the courts after your death.

Fortunately, you can reduce the chances of family squabbles by using estate planning techniques designed to preserve wealth for your heirs in the manner you want, with a minimum of estate tax erosion, if any. Here are four examples:

1. Will. Your will generally determines who gets what, when, where and how. It may be combined with “inter vivos trusts” established during your lifetime or be used to create testamentary trusts, or both. While you can include a few tweaks for your blended family through a codicil to the will, if the intended changes are substantive — such as removing an ex-spouse and adding a new spouse — you should meet with your estate planning attorney to have a new will prepared.

2. Living trust. The problem with a will is that it has to pass through probate. In some states, this can be a costly and time-consuming process. Alternatively, you might transfer assets to a living trust and designate members of your blended family as beneficiaries. Unlike with a will, these assets are exempt from probate. With a revocable living trust, the most common version, you retain the right to change beneficiaries and distribution amounts. Typically, a living trust is viewed as a supplement to — not a replacement for — a basic will.

3. Prenuptial agreement. Generally, a “prenup” executed before marriage defines which assets are characterized as the separate property of one spouse or community property of both spouses upon divorce or death. As such, prenuptial agreements are often used to preserve wealth for the children of a first marriage before an individual enters into a second union. It may also include other directives, such as estate tax elections, that would occur if the marriage dissolved. Be sure to investigate state law concerning the validity of your prenup.

4. Marital trust. This type of a trust can be customized to meet the needs of blended families. It can provide income for the surviving spouse and preserve the principal for the deceased spouse’s designated beneficiaries, who may be the children of prior relationships. If certain tax elections are made, estate tax that is due at the first death can be postponed until the death of the surviving spouse.

These are just four estate planning strategies that could prove helpful for blended families. You might use others, or variations on these themes, for your personal situation. Consult with H&M today to develop a comprehensive plan.

H&M Welcomes New Team Member

 

H&M is proud to welcome Shirley Boatright to our team. Shirley came on board just before tax season as an Administrative Assistant. Working out of our office located at Grandview Yard, Shirley has officially survived her first busy season! She shares this information about herself: 

I am number 8 of 12 children. I have 9 brothers and 2 sisters.  I currently have 26 nieces and nephews. I am from Bolingbrook, Illinois, about 30 minutes from outside of Chicago.I moved to Columbus about 5 years ago and love it here. I am very active. I love running and exercising. I do a half marathon at least once a year and working my way up to a full. I love to hike and swim as well. In my spare time I love watching the food network channel and attempting the recipes.

 

 

 

 

 

 

Estate Planning Strategies for Non-U.S. Citizens

Navigating Your Trust & Estate Planning Options as a U.S. Resident

Non-U.S. citizens residing in the United States endure some unique estate planning challenges when it comes to taxes. If you’re a U.S. resident (but not a citizen), the IRS will treat you similarly to a U.S. citizen – with a few exceptions. However, if you’re a nonresident alien, the tax treatment of your estate will change greatly.

Understanding Residency: What Does It Mean to Be a U.S Resident?

IRS regulations define a U.S. resident for federal estate tax purposes as someone who had his or her domicile in the United States at the time of death. One acquires a domicile in a place by living there, even briefly, with a present intention of making that place a permanent home.
Whether you have your domicile in the United States depends on an analysis of several factors, including the relative time you spend in the United States and abroad, the locations and relative values of your residences and business interests, visa status, community ties, and the location of family members.

Federal Gift/Estate Taxes & Exemptions for U.S. Residents

If you qualify as a resident, you’re subject to federal gift and estate taxes on your worldwide assets. However, you also enjoy the benefits of the $11.18 million lifetime gift and estate tax exemption, along with the annual $15,000 gift tax exclusion. And you can double the annual exclusion to $30,000 through gift-splitting with your spouse, so long as your spouse is a U.S. citizen or resident. The unlimited marital deduction isn’t available for gifts or bequests to non-citizens, though it is available for transfers from a noncitizen spouse to a citizen spouse.

Estate Tax Law for Nonresident Aliens

Being a nonresident alien (if you’re neither a U.S. citizen nor a U.S. resident) is bittersweet in regard to estate tax law. The good news is that you’re subject to U.S. gift and estate taxes only on property that’s “situated” in the United States. The bad news? Your estate tax exemption drops from $11.18 million to a miniscule $60,000, meaning substantial U.S. property holdings can result in a sizeable estate tax bill.

Taxable Property Includes:

  • U.S. real estate
  • Automobiles
  • Mobile homes
  • Aircrafts
  • Farm equipment/machinery
  • Office furnishings
  • Artwork
  • Other tangible personal property located in the U.S.

The Rules on Taxable Intangible Property

Determining the location of intangible property — such as stocks, bonds, trademarks and copyrights — is more complicated. For example, if a nonresident alien makes a gift of stock in a U.S. corporation, the gift is exempt from U.S. gift tax. But a bequest of that same stock at death is subject to estate tax. On the other hand, a gift of cash on deposit in a U.S. bank is subject to gift tax, while a bequest of the same cash would be exempt from estate tax.

Your status as either a U.S. resident or a nonresident alien will affect the estate planning strategies available to you. Holbrook & Manter can help you create an estate plan that will minimize estate tax and allow you to pass more on to your loved ones.

Data Landscape Shifting Abroad


By: Jordan Matulevich- Staff Accountant

The coming changes in the European Union’s new General Data Protection Regulation (GDPR) will have far reaching implications for businesses in the United States when it activates May 25, 2018.

While many may think GDPR may only affect the likes of Fortune 500 companies, the reality is any company currently possessing EU consumer data, or planning to someday, will be forced to comply with the new standards, or face harsh penalties. The user data covered by GDPR includes private user IP addresses, social security numbers, and other sensitive details. Noncompliance with the new ruling will result in a penalty of €20M ($25M) or 4% of global annual sales, whichever is larger.

The new GDPR regulations will force many American businesses to do a ground up analysis of how they are collecting and maintaining international user’s data. Experts predict the new regulation to result in restructuring costs around data processing and the creation of a new corporate officer position: data-protection officer.

The big questions that GDPR effected companies will be asking themselves is: how much consumer data do we have, how secure is it, and why do we have it? The regulation will now give international users the right to forbid companies from collecting and selling their personal data to outside organizations, as well as forcing companies to remove all personal data for a single user when requested– all expenses to be incurred by the company.

GDPR’s effects have the potential to reshape the landscape of global commerce, as well. Many companies will be unable to comply with the stringent structures needed to maintain data authenticity and will resort to either farming out data management to third party companies or incorporating existing data protection products into their repertoire. Companies like Microsoft have already jumped at the opportunities presented by GDPR. Many of the tech giant’s products already include data security tools such as within their cloud computing service, Azure, which includes many data protection features available to users.

While GDPR’s purpose may be to preserve the privacy of individuals; the business effects have the potential to put major strain on businesses unable to comply with the rigid standards. This is something our SOC team is following closely. We invite you to also visit our SOC Audit Services website to learn more: www.SOCAuditServices.com

Thank you to The Ohio Society of CPAs!

This time of year is challenging for any accounting professional. So many of our partners and supporters realize this and shower us with goodies to get us through tax season. Banks, law firms, associations… so many come out in droves to give us the pushes we need to make it to the finish line.

Just yesterday, The Ohio Society of CPAs sent out a team on foot to deliver goodies and other appreciation items. They visited three of our office locations (Wow!) and personally presented our team members with everything from treats and granola bars…to drink coozies and pens. What a nice surprise with a personal touch to go along with it. Our many thanks to The Ohio Society of CPAs for visiting us in Columbus, Marion and Marysville. Our team is comprised of many proud members of OSCPA.

The Ohio Society of CPAs partners with the accounting profession to advance the state of business so Ohio can enjoy a healthy and sustainable economic environment. We are a hub of knowledge, education and advocacy for our members and their teams, providing a vibrant, solutions-oriented community that helps CPAs andbusinesses thrive. To learn more about OSCPA visit their website at: www.ohiocpa.com

 

Looking for a New SOX Firm?


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.  If you know you need to be SOX compliant and you are looking for a new SOX provider, or looking to change SOX firms…what should you look for in your new SOX firm?  To paraphrase the Real Estate mantra “Location, Location, Location”, when you are deciding on a new SOX provider you should be looking for “Experience, Experience, Experience.”

Experienced Staff:  At Holbrook and Manter, we have a team of professionals with valuable experience in the field.  Our team can assist your organization with many aspects in fulfilling your Sarbanes-Oxley requirements.

Experience in various industries:  Our team has experience in assisting public companies with their SOX work in various industries, including:  manufacturing, retail sales, food service, financial services, and agribusiness.

Experience in all aspects of SOX: We offer a risk based approach to Sox compliance and have experience in providing all aspects of Sox services.  These services include:

Project planning

Project management

Risk assessment

Control documentation and framework

Detailed control compliance testing

Remediation of control weaknesses

Evaluation of testing results

Experience, Experience, Experience – Holbrook and Manter is a leading SOX provider in Central Ohio with an experienced staff in the field.  Our team would love to sit down and learn more about your organization and discuss why we should be your chosen SOX Firm.

Don’t overlook securities laws when planning your estate

For a variety of estate planning and asset management purposes, many affluent families hold their assets in trusts, family investment vehicles or charitable foundations. If assets held in this manner include interests in hedge funds, private equity funds or other “unregistered” securities, it’s important to ensure that the entity is qualified to hold such investments.

Certain exemptions under the federal securities laws require that investors in private funds and other unregistered securities qualify as “accredited investors” or “qualified purchasers.”

What is an accredited investor?

Accredited investors include financial institutions and other entities that meet certain requirements, as well as certain officers, directors and other insiders of the entity whose securities are being offered. They also include individuals with either 1) a net worth of at least $1 million (excluding their primary residences), or 2) income of at least $200,000 in each of the preceding two years, and with a reasonable expectation of meeting the requirements in the current year.

A trust (including a foundation organized as a trust) can qualify as an accredited investor in one of three ways: 1.)Its assets are greater than $5 million, it wasn’t formed for the specific purpose of acquiring the securities in question and a sophisticated person directs its investments. 2.)A national bank or other qualifying financial institution serves as trustee. 3.) The trust is revocable and the grantor qualifies as an accredited investor individually.

Family investment vehicles are accredited investors if their assets exceed $5 million and they weren’t formed for the specific purpose of making the investment in question. Alternatively, they can qualify as accredited if all of their equity owners are accredited.

What is a qualified purchaser?

Individuals are qualified purchasers if they have at least $5 million in investments. Other qualified purchasers include:

  • An entity that has at least $5 million in investments, with all of its beneficiaries being either closely related family members; estates, foundations, or charitable organizations of such family members; or trusts created by or for the benefit of the family member described,
  • A trust that doesn’t meet the family exception above, so long as the trust wasn’t established solely for the purpose of making the investment, and every individual associated with the trust as either creator, contributor or investment decision-maker is considered a qualified investor, or
  • An entity with not less than $25 million in investments.

Determining whether a family entity is an accredited investor or a qualified purchaser can be complex, as there are nuances in the definitions. The information provided is intended to be a guideline — your specific circumstances could vary from the general rules. Holbrook & Manter can help. Contact us with any questions.

An Important Message for those in Agribusiness

By: Bradley Ridge, Managing Principal

Holbrook & Manter is committed to keeping our clients informed of changes that are taking place that could touch their financial dealings. A recent signing of a bill by the President prompted us to reach out to our agribusiness and farming clients. I wanted to share that communication with our blog readers as well, not only to explain what this bill means for those working in the agribusiness industry- but also to display our commitment to on-going communication with our clients. Please reach out to us with any questions or concerns you may have after reading the following. We are always here to help:

 

As we strive to fulfill our important role as your partner and advocate for tax planning, we want to reach out to you and share that the President signed a $1.3 trillion spending bill last Friday.  Among many other things, this Appropriations Act, provides a “grain glitch fix” to the provision in the Tax Bill that was passed in late 2017 that gave an unintended advantage to sell grain to a cooperative.  Please see below as we have included only a small portion of the official language in the Act…………………..but as only the government can, this is a rather complex fix.  We are still getting our minds around it and will have more to share this Spring/Summer but for now please accept this email as initial information for your planning. And if you have any questions please let us know.

Issue. The provision in Code Sec. 199A that provided farmers with a tax advantage for selling crops to farmer-owned cooperatives, but not for sales to private or investor-owned grain handlers, was, according to lawmakers, a mistake—the so-called “grain glitch”.

Glitch fix. The Appropriations Act makes significant changes to Code Sec. 199A(g)

Transition rules. The TCJA had repealed Code Sec. 199 for tax years beginning after 2017. However, the Appropriations Act clarifies that the repeal of Code Sec. 199 for tax years beginning after Dec. 31, 2017, does not apply to a qualified payment received by a patron from a specified agricultural or horticultural cooperative in a tax year beginning after December 31, 2017, to the extent such qualified payment is attributable to QPAI with respect to which a deduction is allowable to the cooperative under former Code Sec. 199 for a tax year of the cooperative beginning before Jan. 1, 2018. Such qualified payment remains subject to former Code Sec. 199, and any former Code Sec. 199 deduction allocated by the cooperative to its patrons related to such qualified payment is allowed to be deducted by such patrons in accordance with former Code Sec. 199. In addition, no deduction is allowed under Code Sec. 199A for such qualified payments. (Appropriations Act Sec. 101(c)(2), Division T)

Effective date. The changes under the Appropriations Act, except for those provided in the transition rules above, are effective for tax years beginning after Dec. 31, 2017. (Appropriations Act Sec. 101(c)(1), Division T)