Hawkins Ash CPAs https://hawkinsashcpas.com Part of your business. Part of your life. Fri, 19 Jul 2019 21:16:44 +0000 en-US hourly 1 https://wordpress.org/?v=5.2.2 Hawkins Ash CPAs Announces 2019 Employee Promotions https://hawkinsashcpas.com/hawkins-ash-cpas-announces-2019-employee-promotions/ Thu, 18 Jul 2019 18:47:02 +0000 https://hawkinsashcpas.com/?p=7728 We’re extremely proud to announce the following employee promotions. Justin Petersen – Manager, La Crosse Justin has been promoted to manager. He joined the Firm at the La Crosse office in 2013 and serves as an in-charge auditor for housing authorities, tax credit projects, school districts, and municipalities. Justin is a member of the Rotary […]

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We’re extremely proud to announce the following employee promotions.

Justin Petersen – Manager, La Crosse

Justin has been promoted to manager. He joined the Firm at the La Crosse office in 2013 and serves as an in-charge auditor for housing authorities, tax credit projects, school districts, and municipalities. Justin is a member of the Rotary Club of La Crosse – After Hours. He obtained his Bachelor of Science degree of Accountancy and Finance at the University of Wisconsin – La Crosse.

Amy Breeser, CPA – Senior Associate, La Crosse

Amy has been promoted to senior associate. She started her career with Hawkins Ash CPAs as an intern in January 2016. She provides tax preparation services to individuals and businesses. She also performs compilations and reviews. Before joining Hawkins Ash CPAs, she performed cost accounting for Ashley Furniture. She earned her Bachelor of Science degree of Accountancy at the University of Wisconsin – La Crosse. Amy is a member of both the American Institute of Certified Public Accountants and the Wisconsin Institute of Certified Public Accountants.

Maria Ideker, CPA – Manager, La Crosse

Maria has been promoted to manager. She joined Hawkins Ash CPAs as an intern in 2012 and joined the Firm full-time following graduation. In her role, she prepares business and personal tax returns, compilation and review engagements, Form 5500s, and Wisconsin manufacturing and personal property tax returns. Maria is a member of both the American Institute of Certified Public Accountants and the Wisconsin Institute of Certified Public Accountants. She earned her Bachelor of Science degree of Accountancy at the University of Wisconsin – La Crosse.

Eric Trautman – Senior Associate, La Crosse

Eric has been promoted to senior associate. He joined Hawkins Ash CPAs in January of 2016, starting out as an intern. After being hired after graduation, Eric expanded his duties and currently focuses on tax preparation as well as AUP engagements. Eric earned his Bachelor of Science degree in Accountancy at the University of Wisconsin – La Crosse.

Robert Weinhold – Senior Associate, Manitowoc

Robert has been promoted to senior associate. Robert joined Hawkins Ash CPAs in 2014 as an associate accountant. In his position, he performs audits for municipalities and school districts. Robert also prepares taxes for a variety of clients at Hawkins Ash. He is a member of the American Institute of Certified Public Accountants as well as the Wisconsin Institute of Certified Public Accountants. Robert obtained an Associate degree of Applied Science in Accounting at Lakeshore Technical College and a Bachelor of Arts degree in Accounting at Lakeland College.

Anna R. Weinberger, CPA – Senior Associate, Rochester and St. Charles

Anna has been promoted to senior associate. She joined Hawkins Ash CPAs in 2016. Anna performs reviews, compilations, and audits of nonprofits. She is also a QuickBooks Online Certified ProAdvisor. Previously, Anna worked at the Wisconsin Department of Revenue as a books and records auditor in the Sales and Use Tax Division. She earned her Bachelor of Science degree in Accounting at Winona State University.

Danielle L. Hinz – Senior Associate, Rochester and St. Charles

Danielle has been promoted to senior associate. Her duties with Hawkins Ash CPAs includes preparing taxes for individuals, partnerships, S-corporations, C-corporations, as well as preparing 1095’s. She also does a few compilations for a variety of clients at Hawkins Ash. Danielle attended Rochester Community and Technical College and earned her Bachelor degree in Accounting at Winona State University.

Luke McCabe – Manager, Rochester and St. Charles

Luke has been promoted to manager. He began his career at Hawkins Ash CPAs in 2013 and specializes in tax preparation for a variety of small businesses and individuals. He is also a QuickBooks Online Certified ProAdvisor. Luke farms in Southeastern Minnesota and is a member of AgVA, an agricultural community organization. Prior to joining Hawkins Ash, Luke worked as a senior accountant at Wolter & Raak, LTD for nearly nine years. Luke has obtained his Bachelor of Science degree in Accounting at Winona State University.

Julie Williams – Senior Associate, Rochester and St. Charles

Julie has been promoted to senior associate. She began her career with Hawkins Ash CPAs in 2015. Her responsibilities include payroll compliance, compiling financial statements, quarterly payroll returns, 1099 and W-2 forms, and providing general tax services to a variety of clients. Julie is a member of the National Association of Tax Professionals (NATP). She graduated from Boise State University with a Bachelor of Business Administration degree with an Accounting emphasis.

Jesse Veeser, CPA – Senior Associate, Green Bay

Jesse has been promoted to senior associate. He began his career with Hawkins Ash CPAs in 2015. In the Firm’s Green Bay office, his responsibilities include tax preparation and asset tracking for individuals, C corporations, S corporations, and partnerships. Jesse is a serving member of the US Army Reserves as an E-7/SFC – Platoon Sergeant. Jesse graduated from the University of Wisconsin – Green Bay.

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Form 1095: What Employers Need to Know https://hawkinsashcpas.com/form-1095-what-employers-need-to-know/ Wed, 17 Jul 2019 18:52:38 +0000 https://hawkinsashcpas.com/?p=7763 The Affordable Care Act of 2010 brought some additional recording requirements with it for certain businesses. To discuss this I invited Greg Kenworthy, who heads up the form 1095 reporting area of our Firm, to talk with us. So let’s get into it. – What is a 1095 and what kind of employers are required […]

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The Affordable Care Act of 2010 brought some additional recording requirements with it for certain businesses. To discuss this I invited Greg Kenworthy, who heads up the form 1095 reporting area of our Firm, to talk with us.

So let’s get into it.

– What is a 1095 and what kind of employers are required to file it?

Sure, so there are actually three forms in the 1095 suite:

• 1095A form, which is issued by what’s known as the Obamacare exchanges.
• The 1095B form, which is typically issued by insurance companies.
• And then the 1095C form, which is what we commonly help our clients with. It is issued by employers who are required to file 1095C forms.

– And at that point, I think those forms are required to be filed for people who have full time equivalent employees of 50 or more. Correct?

That’s correct. If the employer employs 50 full time equivalent employees or more, they are required to offer affordable healthcare insurance, and as a result, they are required to file form 1095C to report that they indeed did offer affordable health insurance to their employees.

– When is that form generally due?

So March 4th is the date that you have to give it to your employees, and the paper forms with the IRS, they’re due February 9th of 2019. If you’re electronically filing the forms with the IRS, they are due April 4th.

– Good information. Now there’s been a lot of talk in the media recently about some changes to the affordable care act. Do those tax changes from the reform bill impact this?

Fortunately, not really. The new tax law changes that were passed right at the end of 2017 did not affect the employer mandate to offer health insurance. What they did was effectively eliminate the penalty for the individual mandate. But the employer mandate, meaning that you have 50 full-time equivalent or more employees working for you, you still are required to offer insurance and issue forms 1095C.

– So in this case, the employers who are filing that form should continue to file it?

Absolutely.

– So if anyone wants to get in touch with your group, how do they do that? I know you’re on the websites and a couple other places.

Yeah, the best way is to call our 800- number: 1-800-658-9077 and just ask to speak with someone about form 1095 preparation.

– Okay, now I know a lot of people for larger employers do deal with the 1095C, but the 1095A I think is interesting too because that’s where if you have a subsidy, that’s the form you get from the IRS, correct?

Correct, the form comes right from the exchanges known as the Obamacare exchanges. That form affects your individual tax return greatly and it affects how much subsidy you will get that year.

– Excellent, and I know we do some planning for people in regard to that form also, correct?

Yep, absolutely. These are things that you can do even in early 2019 that can affect the subsidy that you received I 2018.

Good information Greg, thanks for coming on.

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Roth vs Traditional IRAs or 401(k) https://hawkinsashcpas.com/roth-vs-traditional-iras-or-401k/ Wed, 17 Jul 2019 18:24:37 +0000 https://hawkinsashcpas.com/?p=7761 As we talked about last week, many taxpayers had their tax bill go down even though they saw less of a refund. With tax reform bringing rates down to levels that we have not seen in a while, we all have a limited window to take advantage of these rates, but not how you would […]

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As we talked about last week, many taxpayers had their tax bill go down even though they saw less of a refund. With tax reform bringing rates down to levels that we have not seen in a while, we all have a limited window to take advantage of these rates, but not how you would expect. We can take advantage of these rates by not using them.

As we talked about last week, many taxpayers had their tax bill go down even though they saw less of a refund. With tax reform bringing rates down to levels that we have not seen in a while, we all have a limited window to take advantage of these rates, but not how you would expect. We can take advantage of these rates by not using them.

What do you mean by not using them? Don’t take all the deductions you are allowed?

I’m a big fan of having this “three bucket approach.” This approach for me says that in retirement you should have both taxable accounts, non-taxable accounts, and partially taxable accounts. It just makes it really easy to plan when you’re in your retirement years.

Let’s say, for example, your taxable bucket is where your IRA’s and 401k’s would be. These are things in retirement that are 100% taxable to you from every dollar you take out.

The second bucket is your non-taxable budget. That is going to be your Roth IRA’s or Roth 401k’s and maybe an HAS and proceeds from the sale of your home. This is money you can actually take out of these accounts and not pay any tax on.

The third one is partially taxable accounts, which would be things like annuities and after tax investments. What happens is if you have all of your money in a taxable bucket, every dollar you take out to fund your lifestyle and retirement is taxable. There’s really no tax planning that you can do.

Let’s say you have three buckets. Let’s say you have the taxable and the non-taxable bucket. Now you can pull money from either one and you can actually say how much taxable income you want to have. You can only have so much taxable income because you are going to take some out of your non-taxable bucket, and some out of your taxable bucket. It just adds a lot of flexibility when you have these different buckets in retirement.

It sounds complicated and overwhelming to figure out where you are going to put your money and how you’re going to do it. How do you figure it out?

I wouldn’t say it’s easy, but if you know where you expect to be in retirement, a good accountant will be able to walk you through this. They can help you determine, for example, if it’s best for you right now to put money into a Roth IRA or if you should be putting money into a traditional IRA. Should you be putting money into a Roth 401k or a traditional 401k? Sometimes it is short-term pain for long-term gain. Yes, you don’t save the tax dollars today if you do a Roth contribution, but you won’t have to pay taxes on it later. Like I said earlier, with tax rates being as low as they’ve ever been, now may be the time to pay some tax at lower rates because later on they may be higher. The whole concept of a Roth is to pay less tax today than you would pay in the future.

What are some of the other benefits that you can think of by having this flexibility?

So if all you have is taxable accounts, that’s going to be taxable income as you take it out no matter what. If you have these three buckets, you can determine how much of your income you want to come out of your tax free bucket versus your taxable bucket. If you have Roth IRA’s and Roth 401k’s, you can actually take that out early to fund children’s education. So it gives you some flexibility there. It can help out when you are using the marketplace for your health insurance maybe those last couple years before you retire and turn 65. You can use the marketplace and determining what your income is determines what your subsidies will be. The higher the income, the lower the subsidies. If you have that non-taxable bucket, you may be able to have more subsidies and pay less for your health insurance. It works for social security planning and all kinds of things.

So whether you’re before or after age 59 ½, it’s always good to do planning with these “three buckets” in mind.

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Sales and Use Tax is a Big Deal https://hawkinsashcpas.com/sales-and-use-tax-is-a-big-deal/ Tue, 16 Jul 2019 15:43:35 +0000 https://hawkinsashcpas.com/?p=7703 With the passing of the US Supreme Court decision in the South Dakota v. Wayfair, Inc. case on June 1, 2018, you may have become a Remote Seller who is required to collect and remit sales tax to another state. A “Remote Seller” is an out-of-state business that sells its products to customers in another […]

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With the passing of the US Supreme Court decision in the South Dakota v. Wayfair, Inc. case on June 1, 2018, you may have become a Remote Seller who is required to collect and remit sales tax to another state.

A “Remote Seller” is an out-of-state business that sells its products to customers in another state using the internet, mail order, or telephone without having a physical presence in that state. If you know that you are or will be making sales of products for delivery into another state and you meet or exceed the threshold for that state, you are required to register to collect and remit sales tax for that state.

The above US Supreme Court ruling determined that the physical presence standard (nexus) is no longer a requirement for a state to impose a sales tax collection responsibility on sellers. This means all sellers need to evaluate if they have a collection responsibility. Many states have enacted economic nexus laws that apply to any business that makes sales into states in which they have no physical presence but meet the state’s sales and/or transactions thresholds.

To help you determine if you have met a state’s sales threshold, click on the link below. It is a link to the Economic Nexus State Guide which provides key information like effective dates, thresholds, and includable (gross vs. retail vs. taxable) sales for out-of-state sellers making sales into states that have enacted economic nexus legislation.

Economic Nexus State Guide

This is general guidance and is not legal advice.

Please contact Hawkins Ash CPAs for assistance.

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ERISA Record Retention https://hawkinsashcpas.com/erisa-record-retention/ Wed, 10 Jul 2019 21:06:02 +0000 https://hawkinsashcpas.com/?p=7616 Do you know why the question of, “What came first, the chicken or the egg?” continues to be debated after centuries of time? Improper document retention! All (bad) jokes aside though, the Employee Retirement Income Security Act of 1974 (“ERISA”) requires retention of important plan documents and is a serious matter. Complying with ERISA record […]

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Do you know why the question of, “What came first, the chicken or the egg?” continues to be debated after centuries of time? Improper document retention! All (bad) jokes aside though, the Employee Retirement Income Security Act of 1974 (“ERISA”) requires retention of important plan documents and is a serious matter. Complying with ERISA record retention requirements requires being responsible and staying prepared. Failing to do so can get you into a messy situation in the event of an audit.

What Areas Good Document Retention Helps

Audits

This is the primary reason for retaining plan documents. Audits require a lot of documentation to prove the plan has been responsibly managed and kept in compliance. A good portion of the documents you are required to retain are those you’ll need to supply for the audit.

Plan Administration

A reliably followed record retention policy allows you to respond to employee documentation requests or changes, deal with audits, and keep the plan compliant. These are all essential aspects of managing employee retirement plans and benefit entitlements.

ERISA Record Retention Requirements

Under section 107 of ERISA, anyone responsible for filing plan reports must “maintain records to provide sufficient detail to verify, explain, clarify, and check for accuracy and completeness.” In addition, under Section 209 of ERISA, employers should maintain employee records “sufficient to determine the benefits due or which may become due to such employees.” Based on those two sections of ERISA, the next logical question is, “What should be kept?”

401(k) Records that Need to be Kept

Fiduciary Plan Documents

  • Original (signed) 401(k) plan document
  • 401(k) adoption agreement
  • 401(k) plan amendments
  • IRS determination letter
  • ERISA fidelity bond
  • Investment policy statement
  • Trust records/Investment statements

Contracts & Agreements

  • Plan services agreements
  • Annuity contracts and collective bargaining agreements
  • Plan sponsor fee disclosure

Participant Notices

  • 401(k) summary plan description
  • 401(k) summary annual reports
  • Blackout notices
  • QDIA notices
  • Participant fee disclosures
  • Participant introduction packets
  • Proof that the notices were sent

Compliance

  • Form 5500
  • Audited Financial Statements

Participant-Level Benefit Determinations

  • Employee demographic information
  • Employee offer letters
  • Proof of compensation
  • 401(k) census data
  • Payroll records
  • Participant account statements detailing contributions, earnings, loans, withdrawals, etc.
  • Participant election forms including:
    • Distribution forms (with spousal consent waivers, if applicable)
    • Loan documents
    • Deferral amount and allocation election forms
    • Beneficiary terms

How Long Do We Need to Keep This Stuff?

Retirement plan records should be kept until all benefits have been paid and enough time has passed that the plan won’t be audited: In other words, close to forever. Retirement plans are designed to be long-term programs for participants to accumulate and receive benefits at retirement. As a result, plan records may cover many years of transactions. The Internal Revenue Code and Income Tax Regulations as well as ERISA require plan sponsors to keep records of these transactions because they may become material in administering pension law.

If you have questions, please contact us.

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Tax Refund or Tax Due This Year https://hawkinsashcpas.com/tax-refund-or-tax-due-this-year/ Tue, 09 Jul 2019 14:35:38 +0000 https://hawkinsashcpas.com/?p=7724 Now that April 15th has passed, you have seen first-hand how the new tax bill affected your taxes. With so many moving parts, tax reform affected people in many different ways. For the most part, taxpayers paid less tax, but many still saw their refunds decrease. Listen here to learn more: On today’s topic we […]

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Now that April 15th has passed, you have seen first-hand how the new tax bill affected your taxes. With so many moving parts, tax reform affected people in many different ways. For the most part, taxpayers paid less tax, but many still saw their refunds decrease.

Listen here to learn more:

On today’s topic we are going to be talking about the tax refund, or tax due this year.

That’s right, now that April 15th has passed, you might have seen first hand with how the new tax bill has affected tour tax return. With so many moving parts, the tax reform affected people in so many different ways. For the most part, tax payers actually did pay less tax even though a lot of them saw their refunds decrease.

So why is that? Because I’ve noticed that as well.

A lot of different reasons. The biggest thing is that although your taxes went down, with the new withholding tables that the employers had to put into place last February, it actually decreased the withholding a lot more than the savings in taxes. This made the refunds lower.

So, did it really get better or worse this season?

From a refund point of view if you look at the statistics, refunds were down somewhere around 8% as of the end of January. At the end of February they were as down as much as 16% or 17%. So it was a pretty big decrease in refunds at that time. But at the end of March, refunds were slightly up. I think this makes sense because if you think about it, the returns that are done in early January and early February are people with W-2 wages. They’re fairly straight forward returns. That’s what we just talked about. Their tax may have gone down, but their withholdings have gone down a lot more so they saw less of a refund. As you get deeper and deeper in the busy season, you start to do small business returns and some of the more complex returns. Those are the returns that really benefited a lot from the new tax bill. They actually received bigger refunds than normal.

So what should people do if their taxes weren’t what they expected?

Well now that we have this year under our belt, everyone kind of knows that the tax law is going to affect them. So right now is the time to adjust your withholding. Look at the calculator on the IRS website. Look at the new W-4 forms. Do what you have to do to either increase your withholding or decrease your withholding depending on how your year came through. By doing that it will get you much closer to where you were in prior years. If your withholdings were too low, you may have to pay estimated taxes.

But now is also a great time for business owners to really keep track of their expenses. One of the things that we saw during this busy season was that even though business owners were really good at running their business, they’re not as good at keeping track of all of their expenses. Of course, if you don’t keep track of your expenses, you really don’t know what kind of deductions you can take. So now is the time to really set a plan in place if you’re a business owner to keep track of those.

So really this is why someone needs to work with you guys. Any other thoughts on this previous tax season?

Sure. Like I said, I think it was a little more difficult than most. I think most accountants will tell you that. We really did more extensions than we’ve done in the past. Part of the reason for the extensions people’s returns came in late. Whether it was because they wanted to do it on their own because they heard it was much more simplistic than it was in the past. This ended up not being the case.

The new 10-40 form was confusing. It used to be a two page form and they made it a lot simpler by putting it on this double-sided postcard looking thing. But attached to that double-sided card was like seven schedules. So it actually made it more complicated, rather than make it easier.

More people took the standard deduction, but even those who took the standard deduction still needed to keep track of their real estate taxes and their mortgage interest and charitables because they can use some of that on their state returns. Even though they weren’t getting a benefit for it on their federal returns.

I’ll have more thoughts in the weeks to come, but those are some of my initial thoughts over this last busy season.

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Minnesota New Wage Theft Law https://hawkinsashcpas.com/minnesota-new-wage-theft-law/ Tue, 09 Jul 2019 13:57:12 +0000 https://hawkinsashcpas.com/?p=7719 Minnesota’s new Wage Theft Law became effective on July 1, 2019. The new law amends existing state labor laws and provides for new wage and hour requirements, protections and sanctions. According to the Associated Press, Minnesota will have what sponsors say is the country’s toughest wage theft law. It comes down hard on employers who […]

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Minnesota’s new Wage Theft Law became effective on July 1, 2019. The new law amends existing state labor laws and provides for new wage and hour requirements, protections and sanctions. According to the Associated Press, Minnesota will have what sponsors say is the country’s toughest wage theft law. It comes down hard on employers who cheat workers by making it a felony punishable by up to five years in prison and a $10,000 fine. An estimated 39,000 Minnesotans annually are victims of wage theft in some form.
The law also includes protections for employees who report wage theft and new enforcement money. Click the link below to review a summary from the Minnesota Department of Labor and Industry.

https://www.dli.mn.gov/sites/default/files/pdf/wage_theft_law_summary.pdf

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Be Ready for Anything with Regular Business Valuations https://hawkinsashcpas.com/be-ready-for-anything-with-regular-business-valuations-2/ Tue, 09 Jul 2019 13:29:15 +0000 https://hawkinsashcpas.com/?p=7722 Do you know the current value of your business? Even if you’re not considering selling your company or otherwise transferring its ownership right now, it could happen sooner than you think. In some cases, an ownership transfer becomes suddenly appealing when a company struggles to the extent that a sale becomes the best avenue for […]

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Do you know the current value of your business? Even if you’re not considering selling your company or otherwise transferring its ownership right now, it could happen sooner than you think.

In some cases, an ownership transfer becomes suddenly appealing when a company struggles to the extent that a sale becomes the best avenue for starting over. But more positive circumstances can drive the decision, too. For example, a small to midsize business might do so well that it receives an acquisition offer that’s too good to pass up.

Whether it’s an impending ownership transfer, or just a need to learn more about your company, it’s important to establish reasonable expectations of what a valuation provides.

Answering the Right Questions

Some owners mistakenly believe that the balance sheet tells how much a company is worth. But most businesses possess goodwill and other intangible assets — as well as unreported liabilities — that don’t show up on the financial statements.

In truth, cost-based valuation metrics aren’t often used in real-world transactions. Instead, the most popular methods for valuing private businesses include the discounted cash earnings, guideline company transactions and capitalization of earnings techniques. Calculating value under these methods requires the expertise of an outside valuation professional.

To better understand the valuation process, answer these basic questions:

  • What’s the purpose? It could be as clear-cut as an impending sale. Or perhaps a divorce is on the horizon, and the owner must determine the value of the business interest that’s includable in the marital estate. In other cases, the valuation may be driven by tax, estate or strategic planning.
  • What’s the appropriate standard of value? Generally, business valuations estimate “fair market value” — the price at which property would change hands in a hypothetical transaction involving informed buyers and sellers not under duress to buy or sell. But some assignments call for a different standard of value.For instance, say you’re contemplating selling to a competitor. In this case, you might be best off determining the “strategic value” of your company — that is, the value to a particular investor, including buyer-specific synergies.
  • What’s the appropriate basis of value? There’s a hierarchy of different types of value based on the degree of control and marketability an interest carries. Investors place premiums on the abilities to 1) control business decisions and 2) sell the interest on the “market” as quickly and inexpensively as possible.

Digging Deeper

Defining the appropriate basis of value in a business valuation isn’t always straightforward. Suppose a business is split equally between two partners. Even though each owner has some control, stalemates could impair decision making.

On the other hand, a 2% owner might possess some elements of control if the remaining shares are divvied up equally between two 49% owners. Definitively establishing the basis of value requires careful consideration of who owns the rest of the business — and how that allocation affects value given applicable state laws and ownership agreements.

Getting it Done Right

Regular valuations can be an important management tool — particularly if you plan to sell or transfer your interest anytime soon. We can explain the valuation process to you further and work with an appraiser to get the job done right.

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Estate Planning Portability Lives on Under the TCJA https://hawkinsashcpas.com/estate-planning-portability-lives-on-under-the-tcja/ Tue, 09 Jul 2019 13:05:33 +0000 https://hawkinsashcpas.com/?p=7712 When the TCJA was passed, the big estate planning news was that the federal gift and estate tax exclusion doubled from $5 million to an inflation-indexed $10 million. It was further indexed for inflation to $11.18 million for 2018 and now $11.4 million for 2019. Somewhat lost in the clamor, however, was (and is) the […]

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When the TCJA was passed, the big estate planning news was that the federal gift and estate tax exclusion doubled from $5 million to an inflation-indexed $10 million. It was further indexed for inflation to $11.18 million for 2018 and now $11.4 million for 2019.

Somewhat lost in the clamor, however, was (and is) the fact that the new law preserves the “portability” provision for married couples. Portability allows your estate to elect to permit your surviving spouse to use any of your available estate tax exclusion that is unused at your death.

A Brief History

At the turn of this century, the exclusion was a mere $675,000 before being hiked to $1 million in 2002. By 2009, the exclusion increased to $3.5 million, while the top estate tax rate was reduced from 55% in 2000 to 35% in 2010, among other changes.

After a one-year estate tax moratorium in 2010, the Tax Relief Act (TRA) of 2010 reinstated the estate tax with a generous $5 million exclusion, indexed for inflation, and a top 35% tax rate. The American Taxpayer Relief Act (ATRA) of 2012 made these changes permanent, aside from increasing the top rate to 40%.

Most important, the TRA authorized portability of the estate tax exclusion, which was then permanently preserved by the ATRA. Under the portability provision, the executor of the estate of the first spouse to die can elect to have the “deceased spousal unused exclusion” (DSUE) transferred to the estate of the surviving spouse.

How the DSUE Works

Let’s say Kevin and Debbie, who have two children, each own $5 million individually and $10 million jointly with rights of survivorship, for a total of $20 million. Under their wills, all assets pass first to the surviving spouse and then to the children.

If Debbie had died in early 2019, the $10 million ($5 million owned individually and $5 million held jointly) in assets would be exempt from estate tax because of the unlimited marital deduction. Thus, her entire $11.4 million exclusion would remain unused. However, if the election is made upon her death, Kevin’s estate can later use the $11.4 million of the DSUE from Debbie, plus the exclusion for the year in which Kevin dies, to shelter the remaining $8.6 million from tax, with plenty to spare for some appreciation in value.

What would have happened without the portability provision? For simplicity, let’s say that Kevin dies later in 2019. Without being able to benefit from the unused portion of Debbie’s exclusion, the $11.4 million exclusion for Kevin in 2019 leaves the $8.6 million subject to estate tax. At the 40% rate, the federal estate tax bill would amount to a whopping $3.44 million.

Although techniques such as a traditional bypass trust may be used to avoid or reduce estate tax liability, this example demonstrates the potential impact of the portability election. It also emphasizes the need for planning.

Other Points of Interest

Be aware that this discussion factors in only federal estate taxes. State estate taxes may also have a significant impact, particularly in some states where the estate tax exemption isn’t tied to the federal exclusion.

Also, keep in mind that, absent further legislation, the exclusion amount is slated to revert to pre-2018 levels after 2025. Portability continues, although, for those whose estates will no longer be fully sheltered, additional planning must be considered.

Furthermore, portability isn’t always the best option. Consider all relevant factors, including nontax reasons that might affect the distribution of assets under a will or living trust. For instance, a person may want to divide assets in other ways if matters are complicated by a divorce, a second marriage, or unusual circumstances.

Details, Details

Every estate plan includes details that need to be checked and rechecked. Our firm can help you do so, including deciding whether portability is right for you.

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Checking Your Usage Limits in QuickBooks Online https://hawkinsashcpas.com/checking-your-usage-limits-in-quickbooks-online/ Thu, 20 Jun 2019 14:58:55 +0000 https://hawkinsashcpas.com/?p=7694 QuickBooks recently started rolling out usage limits to their Online Plans. The plan limits are as follows: There are two ways you can check your limits: Go to the chart of accounts, classes or locations page. There will be a banner at the top of the page that indicates whether you are below or have […]

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QuickBooks recently started rolling out usage limits to their Online Plans. The plan limits are as follows:

There are two ways you can check your limits:

Go to the chart of accounts, classes or locations page. There will be a banner at the top of the page that indicates whether you are below or have exceeded the limit.
Select the gear icon. Select account and settings and click the usage tab. The usage tab will show you how many items you have used.

If you are currently over the limit, you will not have to get rid of any classes, locations, or accounts, but you will not be able to add anything additional until you are below the list limits or upgrade your subscription.

Please contact one of our accounting services staff for help in decreasing your list limits or upgrading your subscription.

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