May 28, 2019
Reduction in Ohio Small Business Deduction
Currently, the State of Ohio exempts the first $250,000 of income for small businesses, and caps the income tax rate on the rest of the business income at 3%. Referred to as the Business Income Deduction, and calculated on the Ohio Schedule IT BUS, this rule passed originally under then Governor Kasich’s administration and his efforts to make Ohio more business friendly.
The change proposed in House Bill 166 would reduce the exemption amount to $100,000 and remove the 3% tax rate cap. The net result will be an increase in taxes on the business owners for most all of Ohio’s closely held businesses.
There are, of course, two sides to every issue. Ohio business owners offer that this tax reduction helps them be more competitive with larger chain stores, and they use their tax savings to invest in their businesses and communities. The other perspective is that this tax reduction only benefits a segment of Ohio taxpayers, and across the board tax rate reductions would benefit all taxpayers.
We suggest that all business owners make themselves aware of the issue, and talk with their accountant about the possible impact to them if this becomes law.
The following is a link to a post from the Lancaster-Fairfield County Chamber of Commerce that provides more detail on the Bill:
March 19, 2019
2017 Tax Reform: Highlights of the Tax Cuts and Jobs Act
Congress is enacting the biggest tax reform law 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. Most of the changes will go into effect with the 2018 tax year. Many of the changes to individual taxes are set to expire after 2025; however, business provisions are structured as permanent. Here's a quick rundown of the key provisions of the new tax law. This is not an all-inclusive summary of the changes.
· Lower tax brackets for individuals: the table below reflects the old and the new individual tax brackets and income ranges.
December 19, 2018
Does paying real estate taxes early still make sense?
For many of us, it has been a common tax savings strategy to pay our real estate taxes for the next year by December 31st, and to pay the State and Local income tax estimates due on January 15th before the end of December. Doing so made them a deduction for the current year, instead of having to wait until the following year’s tax return was filed almost 18 months later. Before you head over to the county auditor’s office, you should consider the new rules. It may no longer be worthwhile to do so.
The Tax Cut & Jobs Act passed in December 2017 was designed to reduce taxes. It order to reduce taxes some deductions were capped and others were completely eliminated. One of the deductions that was capped is the deduction for state and local taxes, now referred to as SALT. This deduction includes real estate taxes, as well as state, city and school district income taxes. Now, regardless of the total amount paid for these taxes, the most that can be included in itemized deductions for the year is $10,000.
If you’ve already exceeded this cap for the tax year, opting to pay taxes in December won’t make a difference when filing your 2018 tax return. And as we shared in previous Tax Bytes, many taxpayers will take the new larger standard deduction now, instead of itemizing, so it won’t make a difference in those situations.
If your total SALT amount is under this limit, give us a call and we can see if there are other strategies that makes sense for you.
We hope you are having a wonderful Holiday Season! Snyder & Company counts you as one of our many blessings.
December 14, 2018
What is a DAF, you ask?
In a prior Tax Byte, we recommended the use of a Donor Advised Fund, or DAF, as a way of maximizing your charitable contribution deduction. This fund is a charitable investment account, used to provide donations to the charitable organizations that you care about. Because a public charity holds the funds, you receive the tax deduction when you put the money into the fund, not when the fund sends the money to your charity.
Here’s the process:
· Setup the DAF with a qualified charitable foundation. This foundation must be IRS approved.
· Make a non-refundable donation of either cash or, better yet, appreciated stock, to the foundation.
· Give instructions to the foundation on who, when and how much you would like them to donate.
You need to understand that you do give up control of the donated funds. You have advisory privileges over which charities your fund will help, hence the name, Donor Advised Fund. The foundation will honor your donation wishes as much as possible, but there are restrictions and guidelines they have to follow. For example, they cannot make grants to individuals, even if there is a legitimate need.
Some foundations also limit grants to a specific charity, church or geographic area. Some may preclude grants to federally approved charities because that charity’s mission is not consistent with the foundation’s mission. The foundation staff will share this information with you when setup the Donor Advised Fund.
The benefit of this strategy can be significant, as you take the tax deduction all in one year, even though the money is sent to your charities over a number of years.
As always, complicated stuff…. please feel free to call us if you have any questions.
December 6, 2018
End of Year - Business Tax Write Offs
As we head into what I fondly call “holiday vortex” it’s a good time to think about your 2018 tax bill…okay, maybe “good time” is a stretch, but you know what I mean.
The Tax Cut & Jobs Act tax bill passed last December gave businesses the ability to completely write off fixed asset purchases, new or used, for the next 5 years. There are, of course, some restrictions, but in general, purchases of equipment, vehicles, office equipment, etc. can be completely expensed in the year they are acquired. The Sec. 179 Expense Election is still in effect too, so you can pick or choose the one that works best for your situation.
For example, if you financed the purchase of a $100,000 dozer, and you take delivery before the New Year’s Eve party, you can deduct up to $100,000 when you file your 2018 tax return.
The main requirement is that the asset be “placed in service” by 12/31/18. It does not matter how or when it is paid for, but it has to be in use by the end of the year. Just ordering it won’t get you there, it has to be delivered and functional. You can decide next year when preparing your 2018 tax return how much you want to write off.
It may be better to take the deduction in 2019 instead. If that’s the case, you can order it in December to take advantage of the year end deals, but take delivery next year. That will make it a 2019 expense.
In any investment decision, don’t just spend money to save taxes. Make sure it’s a good investment that will either make or save the business money.
As always, there are many more details involved here – give us a call if you have questions.
November 29, 2018
Preserving Tax Benefits of Charitable Gifts
(In honor of Giving Tuesday)
One potential impact of the new tax bill may be the reduction in donations to charities. Only taxpayers who can itemize their deductions get a tax benefit for making donations. That rule did not change, but the 2017 Tax Bill nearly doubled the standard deduction. As a result 28 million taxpayers will no longer use the itemized deduction to save taxes, including gifts to charities. They will just use the standard deduction (the good news is they don’t have to keep their receipt for donating clothing and household items.)
That said, there are still some ways to get tax benefits for donations, including:
· Taxpayers over age 70½ can make Qualified Charitable Distributions (QCDs) from their IRA. There are rules and limits, but done properly these withdraws are excluded from taxable income. Senior taxpayers can get this tax benefit whether they itemize deductions or not.
· A long-time charitable strategy that has not changed is the donation of appreciated stock. Taxpayers take a tax deduction for the VALUE of the stock, not what they paid for it. If they paid $100 for a stock that is now worth $5,000, and they donate the stock to the proper charity, their tax write off is the $5,000.
· Bunching donations in alternate years is another option, and using a Donor Advised Fund can enhance any of these strategies. Donor Advised Funds are established with charities such as our Fairfield County Foundation.
Sorry, but there is just no way to simplify these topics in a Tax Byte. It is food for thought. Talk to your tax professional. If that’s us, give us a call. If it’s not us, we are accepting new clients.