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

If charitable giving is part of your estate plan, consider a donor-advised fund

Do you make sizable gifts to charitable causes? If you’re fortunate enough to afford it, you can realize personal rewards from your generosity and may be able to claim a deduction on your tax return. But once you turn over the money or assets, you generally have no further say on how they’re used. You can exercise greater control over your charitable endeavors using a donor-advised fund (DAF). Bear in mind that under the Tax Cuts and Jobs Act, you must itemize to benefit from the charitable contributions deduction.

Setting up a DAF

As the name implies, your recommendations are integral to a DAF. First, you contribute to a fund typically managed by an independent sponsoring organization or an arm of a reputable financial institution. The minimum contribution generally is $5,000. In exchange for handling the management of the fund, the financial institution or organization usually charges an administrative fee based on a percentage of the deposit.

Next, you make recommendations as to how the DAF should distribute the assets to your favorite charities. Though technically you no longer have control of the money that has been contributed, the fund administrator will generally follow your advice. While you’re deciding which charities to support, your contribution is invested and grows tax-free. Then, your charitable choices are vetted by the organization to ensure that the recipients are qualified charitable organizations. Finally, the administrator cuts the checks and the funds are distributed to the charities.

DAF pros and cons

The advantages of using a DAF include an immediate tax deduction. Your contribution to the DAF is deductible in the tax year in which the initial contribution is made. You don’t have to wait until the fund makes distributions to the designated recipient. In addition, if you contribute appreciated property such as securities, there’s no capital gains tax on the appreciation in value. It remains untaxed forever. Moreover, contributions to a DAF aren’t subject to estate tax or the probate process, and the amounts contributed to the fund are invested and can grow without any tax erosion.

Conversely, despite some misconceptions, contributors to DAFs have effectively no control over how the money is spent once it’s disbursed to charities. Donors can’t benefit personally. For instance, you can’t direct that the money be used to buy tickets to a local fundraiser. In addition, detractors have complained about high administrative fees.

If you believe a DAF is the right charitable funding vehicle for you, be sure to shop around. Fund requirements — such as minimum contributions, minimum grant amounts and investment options — vary from fund to fund, as do the fees they charge. Contact Holbrook & Manter to help you find a fund that meets your needs.

Portals – Gateways to Convenience

 By: Linda Yutzy, Administrative Assistant

The cloud, VPN, virtual machine, AI, IoT, Blockchain, SEO, SaaS – confused yet?  It seems as if there is a new technology term every day.  Technology is changing and advancing so quickly that can be difficult to keep up.  We live in a time when we want and expect all information to be accessible in an instant – research articles (remember researching at the library and a card catalog?  Probably not!), important documents, health information, financial information, important contacts, etc. We want all information at our fingertips. 

A fast growing way to accomplish this is with portals – an internet site that provides access or a link to another site – like a gateway, but in a good way!  I like to look at it as an interactive mail box in the cloud.  Doctor’s offices are rapidly moving toward this technology.  When a patient has any kind of testing or procedure, the results are posted in the patient portal.  The patient then has access to his or her results and can then ask the provider questions and generally be more informed. 

We are using the same sort of technology in the accounting, tax and audit fields.  Our firm can set up a client portal and we can “post” a client’s tax return from our software platform to the portal.  And, we can “upload” items that we want our clients to see or take action on.  Automatic emails are sent when documents are uploaded or posted, so a phone call or another email is typically unnecessary.  The client now has access to the documents 24/7.  No longer do they need to wait until our office opens to request a copy of their tax return – it is posted and they have access to it as long as they have access to the internet.  This is especially convenient when a client needs a copy of their prior years of returns for a banker, attorney and/or wealth planner.  

It also helps with our distant clients.  We have several clients who no longer live in the area, but we can keep preparing tax returns easily – they can upload copies of their tax source documents and we can prepare the returns and post them.  We do not have to rely on the United States Postal Service or Federal Express to deliver returns and then be concerned if they do not arrive.  This is especially important when deadlines are looming and we are waiting on a broker statement or a needed tax document.   

And, did I mention the security?  Portals are much more secure than emails or snail mail.  The portal is registered and a login and password has to be created by the user.  Passwords must be changed frequently and there are requirements for the passwords.  PASSWORD or 123456 is not a valid option! 

If you are confused about portals or hesitant to try them, be reassured that the convenience and safety can outweigh your fears. We would be happy to help you learn more… contact us today.

New Board Appointment for H&M’s Dave Gruber

Dave Gruber, Director of Risk Advisory Services for Holbrook & Manter, CPA’s, has been appointed to the Retirement Board for the State Teachers Retirement System of Ohio (STRS Ohio).  He was appointed jointly by the Speaker of the House and the Senate President in May, 2018, and his term extends through November 4, 2020.

STRS Ohio is one of the nation’s premier retirement systems, serving nearly 493,000 active, inactive and retired Ohio public educators. With investment assets of $77.6 billion (including short-term investments) as of June 30, 2017, STRS Ohio is one of the largest public pension funds in the country. 

For more information about STRS Ohio, please visit www.strsoh.org.

Your original will: Let your family know where it is located

In a world that’s increasingly paperless, you’re likely becoming accustomed to conducting a variety of transactions digitally. But when it comes to your last will and testament, only an original, signed document will do.

A photocopy isn’t good enough

Many people mistakenly believe that a photocopy of a signed will is sufficient. In fact, most states require that a deceased’s original will be filed with the county clerk and, if probate is necessary, presented to the probate court. If your family or executor can’t find your original will, there’s a presumption in most states that you destroyed it with the intent to revoke it. That means the court will generally administer your estate as if you’d died without a will.

It’s possible to overcome this presumption — for example, if all interested parties agree that a signed copy reflects your wishes, they may be able to convince a court to admit it. But to avoid costly, time-consuming legal headaches, it’s best to ensure that your family can locate your original will when they need it.

Storage options

There isn’t one right place to keep your will — it depends on your circumstances and your comfort level with the storage arrangements. Wherever you decide to keep your will, it’s critical that 1) it be stored safely, and 2) your family know how to find it. Options include:

  • Having your accountant, attorney or another trusted advisor hold your will and making sure your family knows how to contact him or her, or
  • Storing your will at your home or office in a fireproof lockbox or safe and ensuring that someone you trust knows where it is and how to retrieve it.

Storing your original will and other estate planning documents safely — and communicating their location to your loved ones — will help ensure that your wishes are carried out. Contact Holbrook & Manter today if you have questions about other ways to ensure that your estate plan achieves your goals.

Brushing up on Bonus Depreciation

Every company needs to upgrade its assets once in a while, whether desks and chairs or a huge piece of complex machinery. But before you go shopping this year, be sure to brush up on the enhanced bonus depreciation tax breaks created under the Tax Cuts and Jobs Act (TCJA) passed late last year.

Old law

Qualified new — not used — assets that your business placed in service before September 28, 2017, fall under pre-TCJA law. For these items, you can claim a 50% first-year bonus depreciation deduction. This tax break is available for the cost of new computer systems, purchased software, vehicles, machinery, equipment, office furniture and so forth.

In addition, 50% bonus depreciation can be claimed for qualified improvement property, which means any qualified improvement to the interior portion of a nonresidential building if the improvement is placed in service after the date the building is placed in service. But qualified improvement costs don’t include expenditures for the enlargement of a building, an elevator or escalator, or the internal structural framework of a building.

New law

Bonus depreciation improves significantly under the TCJA. For qualified property placed in service from September 28, 2017, through December 31, 2022 (or by December 31, 2023, for certain property with longer production periods), the first-year bonus depreciation percentage is increased to 100%. In addition, the 100% deduction is allowed for both new and used qualifying property.

The new law also allows 100% bonus depreciation for qualified film, television and live theatrical productions placed in service on or after September 28, 2017. Productions are considered placed in service at the time of the initial release, broadcast or live commercial performance.

In later years, bonus depreciation is scheduled to be reduced to 80% for property placed in service in 2023, 60% for property placed in service in 2024, 40% for property placed in service in 2025 and 20% for property placed in service in 2026.

Important: For certain property with longer production periods, the preceding reductions are delayed by one year. For example, 80% bonus depreciation will apply to long-production-period property placed in service in 2024.

More details

If and when bonus depreciation isn’t available to your company, a similar tax break — the Section 179 deduction — may be able to provide comparable benefits. Please contact Holbrook & Manter for more details on how either might help your business

H&M’s Stephen Smith Speaks at Columbus Startup Week

Columbus Startup Week 2018 is off and running and H&M Principal, Stephen Smith CPA, CGMA, MBA, CVA had the honor of sitting on a panel of experts on the first day of the event.

The session was entitled, “It’s Time to Call in The Pros” and Stephen shared tips with audience members on how to navigate the accounting side of starting and running a business. He was joined on stage by other experts that business owners should consult with… lawyers, an insurance agent and a financial planner rounded out the panel.

Stephen encouraged the start up attendees to consider partnering with an accounting firm as opposed to a smaller accounting operation that could reach capacity quickly and not be equipped to grow along side of the business. He shared that ultimately, the key is to partner with advisors that will be an advocate for your success. Advisors who will guide you and help you reach your goals as a business owner.

Columbus Startup Week is a unique event and a stellar resource for those in the Columbus business community. As their website states: Columbus Startup Week  isn’t just for founders and investors—it’s for anyone and everyone looking to connect, collaborate, and grow with the community. From students to CEOs, we have sessions for everyone.

Thank you to the event organizers for inviting us to be a part of this event again this year. Learn more about Columbus Startup Week here: www.cmhstartupweek.com

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.