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Congress is enacting the most sweeping tax legislation in thirty years, one that will make fundamental changes in the way you, your family and your business calculate your federal income tax bill, and the amount of federal tax you will pay. Since most of the changes will go into effect next year, there is still a narrow window of time before year-end to soften or avoid the impact of crackdowns and to best position yourself for the tax breaks that may be heading your way.

Here is a quick rundown of last-minute moves you should think about making.

Lower tax rates coming.

The Tax Cuts and Jobs Act will reduce tax rates for many taxpayers, effective for the 2018 tax year. Additionally, many businesses, including those operated as pass-throughs, such as partnerships and S corporations, may see their tax bills cut.

The general plan of action to take advantage of lower tax rates next year is to defer income into next year. Some possibilities follow:

·     If you are about to convert a regular IRA to a Roth IRA, postpone your move until next year. That way, you will defer income from the conversion until 2018 and have it taxed at lower rates.

·     If, earlier this year, you converted a regular IRA to a Roth IRA you may now be questioning the wisdom of that move, since the tax on the conversion would be subject to a lower tax rate had it occurred in 2018 . You have a very limited window in which you can unwind the conversion to the Roth IRA by doing a recharacterization.  This is accomplished by making a trustee-to-trustee transfer from the Roth to a regular IRA. This way, the original conversion to a Roth IRA will be cancelled out. But you must complete the recharacterization before year-end. Beginning January 1, 2018, you will not be able to use a recharacterization to unwind a regular-IRA-to-Roth-IRA conversion.

·     If you operate a business that renders services and operates on the cash basis, the income you earn is not taxed until your clients or patients pay you. Therefore, if you hold off on billings until next year, or until so late in this year that no payment is likely to be received this year, you will likely succeed in deferring income until next year.

·     If, on the other hand, your business is on the accrual basis, deferral of income until next year is difficult, but not impossible. For example, you might, with due regard to business considerations, be able to postpone completion of a last-minute job until 2018, or defer deliveries of merchandise until next year (if doing so won't upset your customers). Taking one or more of these steps would postpone your right to payment, along with the income from that job or the merchandise, until next year. Keep in mind that the rules in this area are complex and may require a tax professional's input.

·     The reduction or cancellation of debt generally results in taxable income to the debtor. So if you are planning to make a deal with creditors involving debt reduction, consider postponing action until January to defer any debt cancellation income into 2018.

Disappearing or reduced deductions, larger standard deduction.

Beginning next year, the Tax Cuts and Jobs Act suspends or reduces many popular tax deductions in exchange for a larger standard deduction. Here is what you can do about this right now:

·     Individuals (as opposed to businesses) will only be able to claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the total of state and local income or property taxes paid. To avoid this limitation, pay the last installment of estimated state and local taxes for 2017 no later than December 31, 2017, rather than on the 2018 due date. However, do not prepay in 2017 a state income tax bill that will be imposed next year - Congress says such a prepayment will not be deductible in 2017. However, Congress only forbade prepayments for state income taxes, not property taxes, so a prepayment on or before December 31, 2017, of a 2018 property tax installment is apparently OK.

·     The itemized deduction for charitable contributions will not be chopped, but, because most other itemized deductions will be eliminated in exchange for a larger standard deduction (e.g., $24,000 for joint filers), charitable contributions after 2017 may not yield a tax benefit for many, because they won't be able to itemize deductions. If you think you will fall in this category, consider accelerating some charitable giving into 2017.  One option to consider if you want to accelerate your charitable giving is to contribute to a donor advised fund before year-end and disburse funds to the charities in the future.

·     The new law temporarily boosts itemized deductions for medical expenses. For 2017 and 2018 these expenses can be claimed as itemized deductions to the extent they exceed a floor equal to 7.5% of your adjusted gross income (AGI). Before the new law, the floor was 10% of AGI, except for 2017 it was 7.5% of AGI for age-65-or-older taxpayers. Keep in mind, however, that next year many individuals will only be able to claim the standard deduction because many itemized deductions have been eliminated. If you won't be able to itemize deductions after this year, but will be able to do so this year, consider accelerating "discretionary" medical expenses into this year. For example, before the end of the year, get new glasses or contacts, or see if you can squeeze in expensive dental work such as an implant.

Other year-end strategies.

Here are some other last minute moves that can save tax dollars in view of the new tax law:

·     The new law substantially increases the alternative minimum tax (AMT) exemption amount, beginning next year. There may be steps you can take now to take advantage of that increase. For example, the exercise of an incentive stock option (ISO) can result in AMT complications. So, if you hold any ISOs, it may be wise to postpone exercising them until next year. In addition, for various deductions, such as depreciation and the investment interest expense deduction, the deduction will be curtailed if you are subject to the AMT. If the higher 2018 AMT exemption means you won't be subject to the 2018 AMT, it may be worthwhile, via tax elections or postponed transactions, to push such deductions into 2018.

·     Like-kind exchanges are a popular way to avoid current tax on the appreciation of an asset, but after December 31, 2017, such swaps will be possible only if they involve real estate that is not held primarily for sale. So if you are considering a like-kind exchange of other types of property, such as an automobile trade-in, do so before year-end. The new law says the old, far more liberal like-kind exchange rules will continue apply to exchanges of personal property only if you either dispose of the relinquished property or acquire the replacement property on or before December 31, 2017.

·     For decades, businesses have been able to deduct 50% of the cost of entertainment directly related to or associated with the active conduct of a business. For example, if you take a client to a nightclub after a business meeting, you can deduct 50% of the cost if strict substantiation requirements are met. However, under the new law, for amounts paid or incurred after December 31, 2017, there is no deduction for such expenses. So if you have been thinking of entertaining clients and business associates, do so before year-end.

·     Under current rules, alimony payments are generally an above-the line deduction for the payor and included in the income of the payee. Under the new law, alimony payments will not be deductible by the payor or includible in the income of the payee, generally effective for any divorce decree or separation agreement executed after 2018. So if you are in the middle of a divorce or separation agreement, be sure to keep this date in mind.

·     The new law suspends the deduction for moving expenses after 2017 (except for certain members of the Armed Forces), and also suspends the tax-free reimbursement of employment-related moving expenses. So if you are in the midst of a job-related move, try to incur your deductible moving expenses before year-end, or if the move is connected with a new job and you are getting reimbursed by your new employer, press for a reimbursement to be made to you before year-end.

·     Under current law, various employee business expenses, e.g., employee home office expenses, are deductible as itemized deductions if those expenses plus certain other expenses exceed 2% of adjusted gross income. The new law suspends the deduction for employee business expenses paid after 2017. So, you should determine whether paying additional employee business expenses in 2017, that you would otherwise pay in 2018, would provide you with an additional 2017 tax benefit. Also, now would be a good time to talk to your employer about changing your compensation arrangement. For example, your employer reimbursing you for the types of employee business expenses that you have been paying yourself up to now, and lowering your salary by an amount that approximates those expenses. In most cases, such reimbursements would not be subject to tax.

Please keep in mind that we have described only some of the year-end moves that should be considered in light of the new tax law. If you would like more details about any aspect of how the new law may affect you, please do not hesitate to call us at 216.831.0733 or email info@zinnerco.com. We're happy to help and ready to start the conversation. 

Like everything in life, the manufacturing process has a beginning and an end. Understanding that process is important for making business decisions regarding raw materials, staffing, inventory, fixed assets, and innovation. 

This knowledge is also used by well-advised businesses to reduce tax expense in Ohio and many other states that have designed their sales tax structure to promote manufacturing.

Read more from Brett Neate here

Ohio does not require sales or use tax to be paid on the purchase or consumption of items used primarily in the manufacturing operation to produce personal property for sale. One of the challenges in maximizing the benefit of this exemption is understanding, for sales tax purposes, when the production process begins and ends.

Production begins when raw materials are committed to the process and ends when the product is in its final state or form. While these definitions seem straightforward, they tend to incredibly nuanced depending on the product being created and the specific process being utilized by the manufacturer.

An additional challenge in properly applying the exemption is when assets or materials are used in both manufacturing and non-manufacturing processes. For example, forklifts are often used to move raw materials, production items, and finished goods. The cost to purchase, maintain, and power the forklifts may or may not be subject to sales tax depending on whether or not they are used primarily in the production process.

Every Halloween, children knock on doors pretending they are everything from superheroes to movie stars. Scammers, on the other hand, don’t leave their impersonations to one day. They can happen any time of the year. People can avoid taking the bait and falling victim to a scam by knowing how and when the IRS does contact a taxpayer in person.

Disaster Tax Relief and Airport and Airway Extension Act of 2017 expands the application of disaster-related tax relief to the hard-hit US Virgin Islands and Puerto Rico. 

Learn “5 Things Every Business Owner Should Do Before December 31” during WIRE-Net’sOctober workshop, Thursday, October 12 at Cuyahoga Community College’s Advanced Technology Training Center. The event is open to members and non-members. 
 
Partner Brett Neate will educate business owners and decision makers as they face the Q4 flurry of activity that is critical to accurately closing 2017 and properly preparing for 2018.

The Western Reserve Historical Society was the perfect setting for the Smart Business Magazine Business Longevity Awards celebration held August 3.

The firm, along with 43 other regional companies, were lauded for 50+, 75+, or 100+ years in business. “We’re thrilled to again be recognized by Smart Business Magazine for our 79 years in business and more so, that we are able to serve clients, many who are multi-generational, with solid, sustainable, and practical accounting, tax, and consulting services,” said Brett Neate, CPA, Partner.

(L to R: Partners Brett Neate, Howard Kass, Sue Krantz, Gabe Adler. Not pictured, Robin Baum)

Con artists often approach victims in their native language, threaten them with deportation, police arrest and license revocation, among other things.

“These scammers continue to adapt and evolve, and the IRS continues to receive reports of these schemes using multiple languages trying to find victims across the country,” IRS Commissioner John Koskinen said.

Since their inception via the Revenue Act of 1978, 401(k) plans have been great tools to help workers save for retirement. While a 401(k) plan has many advantages, there are also some drawbacks to them that one should consider when creating a comprehensive retirement-strategy.

The advantages of a 401(k)

The basic concept of a 401(k) plan is to allow workers to make pre-tax contributions to the plan from their paychecks. As a result, money contributed is not included in their taxable income for that year.

While there are a myriad of ways to reduce Ohio income taxes that are well known and widely leveraged, some methods seem to go largely unnoticed.  One of those lesser-known and underutilized methods that every small business owner, or those interested in owning a small business, should be aware of is the InvestOhio program.

InvestOhio, launched by the State of Ohio several years ago, was created to encourage investment in Ohio-based eligible small businesses.  Qualifying applicants to this program will receive non-refundable Ohio personal income tax credits equal to 10% of their investment in an eligible small business.  Any unused credits can be carried forward up to seven years.

Extracted in part from https://www.irs.gov/uac/newsroom/irs-alerts-taxpayers-with-limited-english-proficiency-of-ongoing-phone-scams-urges-caution-before-paying-unexpected-tax-bills

How private debt collection works

The IRS reminds people to be on the lookout for scam artists trying to dupe taxpayers as the private debt collection program begins.

Starting this month, a new program will transfer some long-standing tax bills over to private firms. The only outside agencies authorized to contact taxpayers about their unpaid tax accounts will be one of four firms authorized under the new private debt collection program. Even then, any affected taxpayer will be notified first by the IRS, not the private collection firm.