By: Linda Yutzy, Administrative Assistant

December is here and most of our thoughts are turned to the holidays, celebrations, and family.  We often refer to this as the “most wonderful time of the year.”  There is even a song with those words in the title!  But what we tend to overlook is that after December comes January.  And, January means that we will begin receiving envelopes with “Important Tax Documents Enclosed” written on them. Those important tax documents may include 1099 forms, broker statements, and W-2s – all documents that we need to prepare the dreaded tax returns. 

While December is a time for holiday celebrations, it is also a key time for tax planning.  The Tax Cuts and Jobs Act made major changes in the tax rules for both individuals and businesses.  Now is a great time to contact your accountant to discuss those changes and how they could impact your tax filings for 2018.  It is good to be proactive in tax planning and we will happily assist you with it.

The Tax Cuts and Jobs Act may change your business and personal tax filings, but the requirements for issuing 1099 forms did not change.  Businesses, and individuals who file a Schedule C, Schedule E, or Schedule F, are required to prepare Form 1099 for any individual or non-incorporated business that meet certain requirements.  The 1099-MISC reports miscellaneous income that falls into different categories. 

Below is a partial list of some of the 1099 types and what the requirements are for issuing them.  Please be aware that this is not an all-inclusive list.  There are many types of 1099 forms. 

FORM 1099-DIV:-

In general, a Form 1099-DIV is required for each person to whom you have paid $10 or more in dividends.

FORM 1099-INT:-

A Form 1099-INT must be filed for each person to whom you have paid $10 or more of interest in the course of your trade or business.

FORM 1099-MISC:-

Form 1099-MISC must be filed to report royalties, rents, prizes and awards, non-employee compensation, and payments to medical assistance programs.  Form 1099-MISC is used to report payments made only in the course of a trade or business.  Payments are required to be reported only if the payments for the year are $600 or more, except for royalties, which require reporting if payments aggregate $10 or more.  Only payments to individuals and non-incorporated businesses are to be reported with the exception of medical and health care payments.  Payments for medical and health care made to individuals, unincorporated businesses, and incorporated businesses must be reported.  Attorney’s fees paid in the course of trade or business must also be reported.

FORM 1099-R:-

File Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA’s, Insurance Contracts, etc., for each person to whom you have made a designated distribution of $10 or more from profit-sharing or retirement plans, any IRAs, annuities, pensions, insurance contracts, survivor income benefit plans, permanent and total disability payments under life insurance contracts, charitable gift annuities, etc.

FORM 1099-S:-

Form 1099-S is used for most real estate sales.  Reporting requirements include sales and exchanges of commercial, industrial and multi-unit residential structures and unimproved land.

Forms must be received by the recipient of the payments by January 31 and must be filed with the IRS by January 31.  Penalties for late filing and intentional disregard can range from $50 per return up to $530 per return.  Multiplied by the number of returns to be filed, the penalty can be severe. 

Take time in December to begin compiling all the information necessary to prepare any 1099 forms required.  It is a good practice to have W-9 forms filled out by those persons to whom you will need to issue 1099s.  Keeping up-to-date and complete records is critical in being able to timely file these information returns. 

If you need any assistance with 1099 forms and filings, please contact our office.  We are happy to assist!

As tax season approaches, the efforts of scam artists looking to steal people’s financial data and money are on the rise. Such fraudulent activities often target older adults. Whether you’re in this age bracket or worry about senior parents and other relatives, here are some ways to prevent elder financial abuse:

1. Keep both paper and online financial documents in a secure place. Monitor accounts and retain statements.

2. Exercise caution when making financial decisions. If someone exerts pressure or promises unreasonably high or guaranteed returns, walk away.

3.Write checks only to legitimate financial institutions, rather than to a person.

4. Be alert for phony phone calls. The IRS doesn’t collect money this way. Another scam involves someone pretending to be a grandchild who’s in trouble and needs money. Don’t provide confidential information or send money until you can verify the caller’s identity.

5. Beware of emails requesting personal data — even if they appear to be from a real financial institution. After all, shouldn’t your banker or financial professional already know these things? Ignore contact information provided in the email. Instead, contact the financial institution through a known telephone number.

6. As much as possible, maintain a social network. Criminals target isolated people because often they’re less aware of scams and lack trusted confidants.

7. Work only with qualified professionals, including accountants, bankers and attorneys.

Contact Holbrook & Manter today to protect yourself or an elder loved one from elder financial abuse. 

By: Shannon Robinson, CPA- Senior Accountant

You’re on a non-for-profit board and one of your responsibilities is fiduciary responsibility.  What does that mean?  Fiduciary responsibility is the obligation to act in the best interest of another party.  Your responsibility is to protect the property, financial assets, and reputation of the organization.  Along with this you should be able to read and understand financial statements.  So, what if you do not have a financial background?  It is important that the accounting department is providing proper information to the board and its members.  This information needs to be accurate, timely, and decision-useful.  The full board should receive summary reports that include narrative notes prepared by the director or the accounting department that describes any significant changes or unusual balances. The finance committee and other various committees may need more detailed reports to analyze certain areas of the organization. 

Here are some reports you should be looking at, what you should be able to learn from the reports, and some of the questions you should be asking in-regards-to the information provided.

The first repot you should be looking at is the Statement of Financial Position / Balance Sheet.  This report shows the overall financial position of the organization at a given moment in time.  It reflects the accumulated results of the organization since the beginning of its time.  The first section of the report shows the assets of the organization.  This includes what the organization has, what is owed to the organization, and what is invested by the organization.  Some examples included cash, inventory, fixed assets, long term investments, grants promised but not yet received, and loans made to others.  These should be listed in order of declining liquidity or which ones can be converted to cash the quickest. When looking at this report you should be able to see if the organization has enough cash to pay its bills, if the organization is collecting what is owed to them, whether the organization has too much inventory on hand, or if the organization needs to upgrade their equipment. The second section of this report shows the liabilities of the organization.  Liabilities are what the organization owes to others such as vendors accounts payable, payroll liabilities, accrued expenses, and short and long-term loans.  These are reflected in order of their maturity.  Which is due first? Short-term are those items due within one year.  When looking at liabilities, you should be asking, are vendors being paid timely, do we have enough cash to pay our bills, are we meeting our tax liabilities in a timely manner, are we strategically using our line of credit and do we have the means to repay it, and how much has the organization borrowed and is there a plan for repayment.  The third and final part of the statement of financial position is the net assets section.  Net assets reflect the net worth of the organization.

The second report you should be looking at is the statement of activities.  This statement shows the organization’s income and expenses for a specific period-of-time.  This report should show some comparisons for you to look at.  It should include a column showing the prior year balances and it should have a column showing what was budgeted for the year.  It is important to have the line items in the accounting software match the line items in the budget for proper comparison.  This way you can see if the organization is on track compared to the prior year and compared to the current year budgeted amounts.  Expenses should be shown by major program activity, management, and fundraising.  This will show you how the organization spends its resources toward accomplishing its mission activities.

Hopefully after reading this you will have a better understanding of what reports you should be looking at and what information each of those provides for you to look at.  If your organization is not providing these reports with the information mentioned above it is your fiduciary responsibility to ask to see them on a regular basis.  A board cannot make good financial decisions without accurate, timely, and decision-useful reports. Contact Holbrook & Manter today for more information on this topic.

Holbrook & Manter believes in giving back to the community. We encourage our team members to support causes that are near and dear to them. Nationwide Children’s Hospital continues to be a place that our firm supports in many ways and recently our team extended the efforts to just across the street at the Ronald McDonald House. Many of our team members hold this cause near and dear to their heart… some have stayed at a Ronald McDonald House before, others know someone who has. All of us believe in their mission.

Here is how RMHC explains who they are and what they do on their website:

For more than three decades, Ronald McDonald House Charities of Central Ohio (RMHC) has been keeping families close at the Columbus Ronald McDonald House. From its beginnings as a grassroots movement established by a partnership between volunteers and local McDonald’s Owner/Operators, the charity has served thousands of families in their deepest times of need.

The reality of having a child sick and in the hospital can be incredibly overwhelming to parents and siblings. What the Ronald McDonald House is able to provide these families is a bit of stability in the midst of unthinkable circumstances. When a child is hospitalized, the comfort of having family nearby is beyond measure. It is this heartfelt purpose that both drives and defines RMHC of Central Ohio.

The staff at the RMHC could not have been more welcoming and gracious as some of our team members arrived to prepare a meal for those utilizing their amazing services. We were greeted by Chef Blair, who was wonderful to work with and passionate about the food she prepares for those at RMHC. On the menu was a pasta bar. We rolled up our sleeves and prepared all that was needed for a healthy meal…. from chicken to pasta… from veggies to fruit. All the major food groups covered and all of it was prepared with love.

Once the meal was ready to be served, our team members greeted some of the families at RMHC and helped them make their food selections. It was our pleasure to meet those staying at RMHC. Our evening on-site ended with a tour of the beautiful facility that so many call home while they must be away from home.

Thank you to RMHC for having us. We plan to return often to continue to fill more bellies, and our souls. Enjoy these snapshots from our experience. To learn more about RMHC, please visit their website: http://rmhc-centralohio.org/

Inventory is expensive, so it needs to be as lean as possible. Here are some ways to trim the fat from your inventory without compromising revenue and customer service.

Objective inventory counts

Effective inventory management starts with a physical inventory count. Accuracy is essential to knowing your cost of goods sold — and to identifying and remedying discrepancies between your physical count and perpetual inventory records. A CPA can introduce an element of objectivity to the counting process and help minimize errors.

The next step is to compare your inventory costs to those of other companies in your industry. Trade associations often publish benchmarks for:

•  Gross margin ([revenue – cost of sales] / revenue),
•  Net profit margin (net income / revenue), and
•  Days in inventory (annual revenue / average inventory × 365 days).

Your company should strive to meet — or beat — industry standards. For a retailer or wholesaler, inventory is simply purchased from the manufacturer. But the inventory account is more complicated for manufacturers and construction firms. It’s a function of raw materials, labor and overhead costs.

The composition of your company’s cost of goods will guide you on where to cut. In a tight labor market, it’s hard to reduce labor costs. But it may be possible to renegotiate prices with suppliers.

And don’t forget the carrying costs of inventory, such as storage, insurance, obsolescence and pilferage. You can also improve margins by negotiating a net lease for your warehouse, installing antitheft devices or opting for less expensive insurance coverage.

Product mix

To cut your days-in-inventory ratio, compute product-by-product margins. Stock more products with high margins and high demand — and less of everything else. Whenever possible, return excessive supplies of slow-moving materials or products to your suppliers.

Product mix should be sufficiently broad and in tune with consumer needs. Before cutting back on inventory, you might need to negotiate speedier delivery from suppliers or give suppliers access to your perpetual inventory system. These precautionary measures can help prevent lost sales due to lean inventory.

Often management is so focused on sales, HR issues and product innovation that they lose control over inventory. That is where we come in. Contact Holbrook & Manter today for assistance.

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

The Tax Cut and Jobs Act has resulted in many changes for 2018. One of the most significant impacts to be felt by taxpayers is going to be with their ability to itemized deductions. One major change regarding itemized deductions is the capping of the deduction of state and local income and real estate taxes to $10,000. For married couples who now get a standard deduction of $24,000, this means that they will need to find a combination of $14,000 in other itemized deductions if they hit the $10,000 cap on state and local income and real estate taxes. Keeping in mind medical expenses cannot be deducted until those expenses exceed 7.5% of adjusted gross income; many taxpayers will not have enough in mortgage interest and charitable deductions in a year to exceed the $24,000 standard deduction amount. This means for millions of taxpayers there is effectively no charitable giving deduction. However, there is a way to maximize the charitable giving deduction by using a donor-advised fund.

 A donor-advised fund is set up to allow taxpayers to donate property to it. The donor gets to take an immediate tax deduction for charitable purposes for the full amount of the property donated, but they have the ability to grant those funds over several years to the charitable organizations of their choice. Assume for Tax Years 2018 and 2019 that a married couple has hit the $10,000 cap for state and local income and real estate taxes each year, no mortgage interest to deduct, and gives $12,500 per year to various charities. Under the current rules, they have $22,500 in itemized deductions each year which is below the standard deduction of $24,000. This means that none of the charitable giving will be deductible in either 2018 or 2019. However, if the married couple donated $25,000 worth of property to a donor-advised fund in 2018, they would get to itemize $35,000 worth of deductions in 2018. This will allow the taxpayers to reduce their taxable income by $11,000 more in 2018 resulting in significant tax savings regardless of which tax bracket they fall under. Further, they can grant funds from the donor-advised fund to the charities of their choosing in both 2018 and 2019 (or beyond).

Whenever it is possible taxpayers should be rewarded for their kindness and generosity. There are only a few weeks left in 2018 to act if you think that a donor-advised fund is the right choice for your charitable giving. At Holbrook and Manter, we are prepared to answer any questions you may have regarding donor-advised funds and their tax benefits.

By: Jennie K. Schott, Audit & Assurance Services Assistant 

The changes that the new tax reform is bringing on has been one of the hottest discussions in the accounting and tax field during the 2018 calendar year. The new law has changed a substantial number of previously written tax laws, and there are very few levels of individuals and businesses that are not affected by its changes. There are several pieces of the tax reform that all non-profit organizations should be aware of, specifically related to the Unrelated Business Income Tax (UBIT).

The UBIT is a tax imposed on a non-profit organization’s income from a trade or business that is (a) regularly carried on and (b) not directly or substantially related to the non-profit organization’s exempt purpose. For example, let’s say that your non-profit organization’s purpose and function is to provide art materials to local schools. If your organization would decide to create a store-front location to sell art materials and other goods to paying patrons, this would qualify as Unrelated Business Income (UBI). If a non-profit earns more than $1,000 in UBI during any fiscal year, it is required that the organization pay tax on the UBI at the corporate rate through the filing of Form 990-T.

The new reform is changing the UBIT framework in more than one way, starting with its perspective on certain fringe benefits provided by non-profit organizations to their employees. Fringe benefits can range from parking and commuting costs, to on-premises gyms and moving expense reimbursements. Under the new reform, the costs of providing fringe benefits (paid by the employer) will be classified as Unrelated Business Taxable Income to the employer. In other words, the non-profit organization paying for these benefits provided to its employees will also be responsible for paying income tax on these benefits.

The new reform is also requiring a mandatory separation of lines of business for all UBI activities. Before the tax reform took place, a non-profit organization could aggregate its profits and losses from all of its UBI activities. The advantage in doing so would be to offset the losses from one UBI activity with the gains of another, potentially decreasing the organizations tax liability. Under the new law, the combination of these lines of business is prohibited.

These UBIT-related alterations to the tax law may not affect all non-profit organizations, but it is something for all to be aware of. If your organization is feeling unsure about the new reform and could use some additional guidance on the most effective and efficient ways to account for these changes, while minimalizing tax liabilities, Holbrook & Manter’s team of tax and accounting professionals is here to help. Reach out to us today for assistance.  

For Immediate Release:

Holbrook & Manter, CPAs, a professional services firm with offices in Columbus, Dublin, Lewis Center, Marion & Marysville announces that Mark Rhea, J.D., CPA, is now a Certified Valuation Analyst.

Mark is a member H&M’s tax team, serving as a Senior Assistant Accountant. He holds a degree in history from Ohio University and a degree in accounting from Franklin University. Mark received his law degree from the University of Toledo.

As an attorney, Certified Public Accountant and Certified Valuation Analyst, Mark is uniquely positioned to assist H&M’s client base and is adding to the continued growth of the firm’s business valuation service offerings. 

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. For Media Inquires, please contact: Molly Pensyl, Marketing & Business Development Manager 614.516.0040 MPensyl@HolbrookManter.com 

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

 www.HolbrookManter.com

www.SocAuditServices.com

www.BusinessAccountingServicesOhio.com

For Media Inquires, please contact:

Molly Pensyl, Marketing & Business Development Manager

614.516.0040 MPensyl@HolbrookManter.com

By: Molly Pensyl, Marketing & Business Development Manager

“If everyone is moving forward together, then success takes care of itself.” -  Henry Ford

The entire H&M team came together recently to hold our annual team day event. This day was used to celebrate where we have been as a firm and where we are headed. H&M principal, Justin Linscott, shared with the team that we are all rowing in the same direction. This is why it was so fitting to share the Henry Ford quote I listed above in this blog. Our team members, no matter their respective roles, work with the best interest of our clients in mind. We all forge ahead in the same manner with a true commitment to keeping our clients compliant and successful.

Holbrook & Manter will turn 100 in 2019. We shared a great deal about that fact at our team day. Our firm will enter our centennial year stronger than ever and with a new look (stay tuned for further details on that to come). We will celebrate our 100th year as a continuous firm backed by a team that not only works well together, but also plays well together.

You see, team day was also about having fun. After we handled all of the firm business that needed attention that day, we hit the bowling lanes and the pool table. Enjoying each other’s company outside of work tasks is vital to the success of any team. Lots of laughs were had… as were some strikes and some gutter balls. Team day was a success and we appreciate all of the clients that allow us to work together on their behalf each day.

Enjoy some snapshots from our day below:

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

Since the passage of the Tax Cuts and Jobs Act much has been made of the fact that individuals can now exclude from taxation total lifetime gifts and estate assets of $11.18 million. This is certainly a fair amount of money to exclude for gift and estate tax purposes, but it is possible that it may not be enough for people who are growing a successful, closely-held family business or have high-appreciating, income producing assets. For people in these situations, transferring these assets to an intentionally defective grantor trust may be the best way to protect those appreciating assets from unnecessary gift and estate taxes.

Although perhaps poorly named, an intentionally defective grantor trust is “defective” because the grantor who transferred the assets to the trust is obligated to pay the income taxes on it rather than the trust or the beneficiaries. This is by design allowing the trust or its beneficiaries to not have to pay income tax on income generated in the trust.

If done properly, an intentionally defective grantor trust (“trust”) will allow a person to transfer an asset to the trust where the value of the asset can appreciate and grow without fear of it incurring any gift or estate taxes. The process starts by setting up a trust that allows whatever is transferred into the trust to be considered not part of the grantor’s estate but will permit any income generated by it to be taxed to the grantor. The taxing of income to the grantor is accomplished many times by the grantor retaining the power to substitute assets in the trust. The trust is then funded with seed money in order to give the trust some equity which will be reported on a federal gift tax return as a gift to the trust. The asset that will be transferred to the trust from the grantor will be properly valued at fair market value by an appraiser or valuation analyst and then sold to the trust by the grantor. The grantor will receive a note from the trust in the amount of the fair market value of the property with a market interest rate and terms of repayment. The amount of the note essentially “freezes” the value of the asset transferred to the trust as the value of the note will not appreciate. As the IRS recognizes that the grantor and the trust are the same for income tax purposes, no gain is reported on the sale of the asset to the trust.

Sound too good to be true? It almost was when the Obama Administration sought to close the loophole that allows this to occur. Fortunately, it still exists, but the fact that actions were sought to do away with these trusts should tell you that it may not be around forever and now is the time to act in order to lock in the positive effects of an intentionally defective grantor trust.

If you believe that your circumstances are such that you and your family may benefit from an intentionally defector grantor trust, do not hesitate to contact us. Even if it turns out that it is not the best avenue for you, we can suggest alternatives that are. At Holbrook & Manter, CPAs we stand ready to help with all your wealth planning needs.