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12 (More) Great Ideas
Chris Sivak, CPAFebruary 18, 2016
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What to Look for: • Individuals that have funds in traditional IRAs, that have other
liquid assets, that want to contribute to a Roth IRA
The Opportunity:• Higher incomes limit an individual’s ability to contribute to an
IRA, both Roth and Traditional• These income limits don’t apply on a conversion of an IRA to a
Roth• Converting an IRA to a Roth can be done right after the
contribution to the IRA• Watch out for the traps for the unwary
ROTH CONVERSION1
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The Benefit:• The Roth IRA will not only grow tax free; no amount will be
taxable on withdrawal; a permanent tax saving• No required minimum distributions at age 70 ½ • More can be left to heirs• May help the taxation of social security benefits
ROTH CONVERSION1
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COMPLIANCEAFFORDABLE CARE ACT
What to Look for:• Companies with more than 50 FTEs in 2014 or 2015
The Opportunity:• Prepare for filing Form 1095-C now for March 31, 2016 filing
deadline Many payroll providers won’t do it, or will need lots of information from you to
do it, or will charge an arm-and-a-leg to do it last minute
• Review health insurance costs and coverages and employees now to determine: What is offered How much it costs Who is eligible
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COMPLIANCEAFFORDABLE CARE ACT
The Benefit:• Timely filing of Form 1095-C with minimal headaches and
surprises• Stay in compliance with the ACA for 2016 and avoid costly
penalties• Have information to make a Pay or Play decision
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SAVINGS ACCOUNTDON’T USE YOUR HEALTH
What to Look for:• Anyone contributing to a Health Savings Account that would like to
save more for retirement on a tax deductible basis
The Opportunity:• Retirement plan contributions and IRA contributions are limited in
amount and by other restrictions• The HSA in many ways behaves like an IRA
Funds are invested Earnings are tax free/deferred Balances can be left to heirs
• Why not just pay for medical costs out of pocket and leave the HSA alone?
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SAVINGS ACCOUNTDON’T USE YOUR HEALTH
The Benefit:• Available for medical costs in retirement• Can be left to heirs• Could be used for non-medical expenses in retirement, the
amounts are just taxable (like an IRA)• No required minimum distributions• Out-of-pocket medical expenses are still tax deductible
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IN YOUR BUSINESSMAKE TRUSTEES ACTIVE
What to Look for:• Profitable businesses that are organized as S Corp, LLC or partnership• The owner has gifted away some ownership to a family trust for estate
planning
The Opportunity:• The new Net Investment Income Tax is an add on to the income tax at
modest levels of income for a trust• The income of a pass-through that flows out to non-active owners
attracts the NII tax• Trusts are generally considered non-active owners• If the active business owner raises the level of the trustee’s involvement
to active, the trust can also be considered active in the business
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IN YOUR BUSINESSMAKE TRUSTEES ACTIVE
The Benefit:• The NII is avoided by the trust• Be careful about making a trustee active though
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LOCATION WISELYCHOOSE YOUR RESIDENCE
What to Look for:• Individuals planning on changing their residence
The Opportunity:• Most Ohio cities have an individual income tax on a resident’s
income• Townships do not have income taxes• Areas further from major city centers generally have lower
property tax rates and insurance costs• Choosing a residence maybe only a short distance away from
a city, in a township can create some real savings
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LOCATION WISELYCHOOSE YOUR RESIDENCE
The Benefit:• Choosing a township as a residence rather than a city can
save on the residence portion of the income tax If a city’s residence tax rate after credits is 1%, an individual making
$250,000 per year can save $2,500 in city taxes Insurance and property taxes could be lower as well
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ADDITIONS CAREFULLYREVIEW CAPITAL
What to Look for:• Profitable businesses• Making regular capital expenditures
The Opportunity:• Although the tax law generally requires capital assets to be capitalized
and depreciated, there are ways to expense the costs currently• In 2015, businesses with audited financial statement can expense up to
$5,000 per item purchased• Without an audited financial statement the limit is $500 ($2,500 in 2016)• Carefully review each invoice to identify individual items that are under
this per item threshold• Must have a policy and treat consistently with financial statements
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ADDITIONS CAREFULLYREVIEW CAPITAL
The Benefit:• Immediate expensing• Tax payers with a loss that can’t use section 179 can benefit• The dollar limit is “per item”; have vendors detail items on
invoices• Need written policy
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AGAINST CATR&D CREDIT
What to Look for:• Ohio business paying the Commercial Activity Tax• Spending money on qualified research
The Opportunity:• Ohio allows a credit for increased research and development
costs against the Commercial Activity Tax• The R&D costs that qualify generally follows the federal
definition under Section 41• If the current year R&D expenses (under section 41) exceed the
average of the prior three years the excess qualifies for the credit
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AGAINST CATR&D CREDIT
The Benefits:• The credit earned equals 7% of the excess R&D costs in the
current year• Any excess credit over the total CAT can be carried forward
for 7 years
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RETAINED ANNUITY TRUSTCONSIDER THE GRANTOR
What to Look for:• High net worth individuals• Willing to make irrevocable gift to a trust• But still wanting to maintain an income stream
The Opportunity:• Transfer assets that are likely to appreciate to a GRAT• Set the GRAT up to make annual annuity payment to the donor
for a fixed term• The present value of the annuity payment reduces the value of
the gift transferred to the trust• Use income producing and high appreciation assets
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RETAINED ANNUITY TRUSTCONSIDER THE GRANTOR
The Benefit:• The amount of the gift value is minimized because of the
retained interest• Income of the GRAT is taxed to the donor so further estate
savings because the trust assets aren’t depleted for taxes• Trust assets can remain in trust beyond the annuity term
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FILE FOR SOCIAL SECURITYCONSIDER WHEN AND HOW TO
What to Look for:• Individuals nearing retirement age
The Opportunity:• Review your financial situation before claiming benefits and consider the
following: How much the reduced benefit from early filing might cost, including COLAs and Delayed
Retirement Credits The impact of delaying benefits on Survivor benefits How social security benefits will be taxed
• Planning for spousal benefits is complicated and must consider the: Worker benefits Spousal benefits Survivor benefits
• Have a professional review your Medicare benefits options during open enrollment
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FILE FOR SOCIAL SECURITYCONSIDER WHEN AND HOW TO 9
The Benefit:• Proper planning can have a dramatic impact on benefits
Example: How delaying Social Security can benefit a surviving spouse
If both spouses start collecting benefits at age 62, and the husband dies at age 82
If the wife collects at age 62, the husband delays benefits to age 70, and he dies at age 82
Initial benefit for husband $12,000 $26,751
Initial benefit for wife (on her own work record) $12,000 $12,000
Benefit that will continue for surviving spouse $21,673 $38,133
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FILE FOR SOCIAL SECURITYCONSIDER WHEN AND HOW TO 9
The Benefit:• Income taxes can be minimized
Approach A: Taking reduced Social Security early and supplementing with higher IRA withdrawals
Approach B: Delaying Social Security
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FILE FOR SOCIAL SECURITYCONSIDER WHEN AND HOW TO 9
Approach A: Taking reduced Social Security early and supplementing with higher IRA withdrawals
Approach B: Delaying Social Security
Approach A Approach BAdjustment amount $25,000IRA income $45,000 $20,000Social Security + $45,000 + $70,000Total pre-tax income = $90,000 = $90,000AGI $45,000 $20,000Plus tax-exempt income + $0 + $0Modified AGI = $45,000 = $20,000Social Security benefits $45,000 $70,000Amount includable in gross income (least of the three tests) $25,975 $15,350
Taxable income $70,975 $35,350
Difference - $35,625
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OHIO SBDWhat to Look for:• Profitable businesses doing business in the state of OhioThe Opportunity:• Any business doing business in the State of Ohio
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OHIO SBDThe Benefit:• The state offers an automatic deduction on individual income
tax returns for 75% of the taxable income of a flow through entity or sole proprietorship up to $250,000 for business income
• Don’t forget about the following: Interest Dividends Capital gains Ohio depreciation add back Wages for greater than 20% owners And of course the subtractions
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DESIGNATION FORMSCHECK BENEFICIARY
What to Look for:• Anyone with an IRA or retirement plan
The Opportunity:Avoid these 10 costly mistakes:1.) No named beneficiaries2.) Naming your will or estate as your beneficiary3.) Minor beneficiaries4.) College age beneficiaries5.) Ex-spouse as a beneficiary
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6.) No contingent beneficiary7.) Special needs individual as a beneficiary8.) Not naming a trust as IRA beneficiary for asset protection9.) Naming a generic trust as beneficiary10.) Elderly parents as beneficiary
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DESIGNATION FORMSCHECK BENEFICIARY
The Benefit:• Assets end up where they belong• Taxes might be minimized• Family issues can be avoided
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SECTION 529 PLAN?WHO OWNS THE
What to Look for:• Families planning for college• That have contributed to 529 plans• Or are contemplating 529 plans• With children nearing college age
The Opportunity:• Proper ownership of the 529 plan can increase financial aid• Grandparents ownership of 529 plans do not need to be listed as an asset on the
FAFSA form• However distributions count almost 10X as much as distributions from parents’
accounts• Take grandparent owned 529 distributions after January 1 of the student’s junior
year• Or change ownership to the parent after the same time
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SECTION 529 PLAN?WHO OWNS THE
The Benefit:• The 529 plan assets do not count as an asset which would
reduce financial aid• Distributions from the plan won’t affect the untaxed income
counted toward the student’s aid
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INVESTOHIO IS BACKBONUS SLIDE:
• Equity contributions• Used in Ohio for cap ex or payroll growth• Results in 10% credit of amount invested and spent in Ohio
against the Ohio personal income tax• Effective for equity contributions and investment between July
1, 2015 and June 30, 2017
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