Ohio Tax Update: State Offers Dollar-for-Dollar Tax Credit for Scholarship Fund Donations
Dec 14, 2022
Starting with the 2021 tax year, the state of Ohio began offering dollar-for-dollar tax credits to individuals who donate to an Ohio-certified scholarship granting organization, or SGO. Defined by the state, SGOs are organizations exempt from federal taxation under section 501(c)(3) of the Internal Revenue Code, that prioritize awarding academic scholarships for low-income students to attend primary and secondary schools (K-12), and that receive certification from the Office of the Ohio Attorney General.
Individuals that donate to an SGO can expect to receive a tax credit equal to 100 percent of their contribution (up to $750,) while married couples could receive up to a $1,500 credit. In addition to claiming the state tax credit, eligible charitable contributions can also be claimed on federal income tax returns if the taxpayer opts to itemize their deductions.
Currently, there are 25 certified SGOs in the state of Ohio, all of which are listed on the Ohio Attorney General’s website.
“This is a very easy credit for Ohio taxpayers to take advantage of,” says William Vaughan Company Tax Partner, Sandi Towns. “Those who have donated to Ohio-certified SGOs in 2022 need simply include their proof of donation letter(s) with other tax documents given to their accountants.”
Says Towns, “William Vaughan Company’s tax team will continue to monitor this and other tax credit updates, however I urge anyone wishing to take advantage of these credits to contact their accountant in order to determine which credits make the most sense for their specific tax and financial situation.”
Sandi Towns, CPA/PFS, CFP®
Tax Partner
sandi.towns@wvco.com
Categories: Tax Planning
IRS Tax Update: Filing Deadlines Extended to February 15, 2023 for Hurricane Ian Victims
Oct 04, 2022
On September 29th, the IRS announced Hurricane Ian victims in the state of Florida will now have until February 15th, 2023, to file various federal returns.
The tax relief measure applies to businesses and individuals operating and residing in areas designated to receive disaster relief from FEMA. Those eligible must also have had a filing deadline of September 23rd, 2022, or later. In other words, any business or individual in the state of Florida that filed to extend their 2021 federal tax returns out to October 17th, 2022, will now have until February 15th, 2023, to file any returns or taxes.
For businesses, the extension relief will also apply to quarterly payroll and excise tax returns normally due on October 31, 2022, and January 31, 2023. For individuals, the tax relief applies to any quarterly estimated income tax payments due on January 17, 2023. Additionally, penalties on payroll and excise tax deposits due on or after September 23, 2022, and before October 10, 2022, will be abated as long as the deposits are made by October 10, 2022.
The IRS will automatically apply this relief measure to taxpayers with a record of address in the disaster area, meaning there is no need to contact the agency directly. However, if an affected taxpayer receives a late filing or payment notice (that had an original or extended filing, payment, or deposit due date falling within the postponement period,) the taxpayer should call the number listed on the notice as soon as possible to abate the penalty.
For more information on the tax relief measure or to see if you qualify, contact your trusted team of tax professionals at William Vaughan Company as we continue to monitor IRS updates and the situation in Florida.
Connect with us.
Categories: Other Resources, Tax Compliance, Tax Planning
Strategic Financial Moves to Consider During A Market Downturn
May 19, 2022
The natural ebbs and flows of market volatility can make even the best investors a bit nervous at times. However, smart investors also recognize the opportunities presented by a downturn. These include specific financial strategies to be leveraged for a long-term benefit. Here are several financial moves one should consider during a market lull:
Roth IRA Conversions
During normal market conditions, Roth IRA conversions typically initiate a sizable tax event. However, during a market dip, Roth IRA conversions are a prime opportunity to move funds from a traditional taxable IRA to a tax-free Roth IRA all while saving money.
To achieve the benefits of a Roth IRA conversion, investors convert funds from their traditional IRA to a Roth IRA. While the conversion will trigger a taxable event, it’s based on the contributions and earnings. The larger your pre-tax balance, the more you will owe. During market volatility, financial experts recommend making this move as “it is like getting the Roth IRA on sale” and when the market ultimately recovers, that growth is captured, tax-free, inside of the Roth IRA.
If you don’t have a traditional IRA, this can also be achieved through what some call a “backdoor Roth IRA,” an unofficial means for high-income individuals to create a tax-free Roth IRA.
Remember, the earnings limits for Roth individual retirement account contributions are capped at $144,000 modified adjusted gross income for single investors and $214,000 for married couples filing together in 2022.
To achieve the benefits of a “backdoor” Roth IRA conversion, investors make what’s known as non-deductible contribution to a pre-tax IRA before converting the funds to a Roth IRA, kickstarting tax-free growth.
Gift & Estate Planning
A market downturn is also a great opportunity for individuals seeking to minimize estate taxes and gift assets to others. This is because the value of the securities will be lower, resulting in a lower gift tax amount and all subsequent appreciation will be excluded from your estate – a win-win!
Tax-Loss Harvesting
Tax-loss harvesting is another key strategy to consider during a down market. It involves selling investments that have lost value and replace them with similar investments to ultimately offset your capital gains with capital losses. In doing so, investors reduce their tax liability while better positioning their portfolio. This can be done up to $3,000 a year. The average investor can leverage this strategy and it doesn’t involve much but an assessment of your investments and their performance. A couple of items to note when considering this option is:
- It applies only to investments held in taxable accounts – so it does not include 401(k)s, 403(b), IRAs or 529s because the growth in these tax-sheltered accounts in not taxed by the IRS
- This is not a beneficial strategy for those in lower tax brackets – the idea is to reduce your tax liability and traditionally, those individuals in the higher tax bracket have a greater liability and therefore, a greater savings.
- The deadline for taking advantage of this approach is the end of the calendar year – December 31.
Finally, the information provided above is for general information only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. We recommend connecting with your financial and tax advisors to discuss the best plan of action for your personal situation.
Connect With Us.
wvco.com
Categories: Estate Planning, Tax Planning
Ohio’s Municipal Withholding Dilemma – Take 3
Dec 30, 2021
Hybrid work arrangements significantly impact municipal income tax withholding requirements and raise other municipal tax issues.
With the start of the new year just around the corner, the “pre-pandemic” law for Ohio municipal income tax withholding will soon return.
Applicable to periods beginning on or after 1/1/2022, if an employee works a hybrid schedule by spending some days working at home and other days working at the office, employers will once again be required to withhold municipal tax based on where the employee’s work is actually performed. For many employers, this may trigger withholding for employees’ home municipalities that the employer may never have been required to do before. Additionally troubling is the requirement for businesses to allocate such wages, and potentially apportion some gross receipts (sales) as well, to these home municipalities for purposes of the net profits (income) tax, subjecting the company to income tax reporting in each of their employees’ home municipalities.
As we recommended in our July blog, to ease the complexities of tracking actual work locations for Ohio municipal withholding requirements in 2022, employers could consider having employees sign formalized, hybrid work agreements. Such agreements provide consistency, structure, and ease of record keeping. In exchange for permitting hybrid work schedules, employers might consider requiring employees to report true-up differences between actual and forecasted work on their personal municipal income tax returns and to provide proof of payment (in case the employer is audited). Noting that the hybrid work agreement will be helpful but cannot cover all municipal activity, employers could also aim to develop ways within their internal system to most easily track multi-location work performed by employees throughout the year. Employers could consider contacting municipalities to gain pre-approval of estimated or hybrid withholding approaches or enter into withholding agreement(s) with the municipalities. Consultation with legal counsel related to any employment arrangements should also be considered due to the complexity of labor laws.
If we can assist you regarding your specific facts and circumstances and in making decisions about municipal income tax compliance or if you have any questions, please contact your William Vaughan Company advisor.
Categories: Tax Compliance
Timely Estate Planning Strategies: Part Two
Oct 21, 2021
Low-Interest Rate Opportunities
An important component of personal financial and estate planning often includes transferring assets and future growth of those assets to younger generations or to charitable organizations while reducing current income taxes and future potential estate taxes. Once properly made, appreciation of such transfers and any future income generated thereon can be free of transfer taxes.
The current low-interest-rate environment provides an excellent opportunity to shift wealth to future generations. While we cannot predict the future, we can anticipate the writing on the wall. As noted in our previous post, Estate Planning Strategies Before Year-End: Part One, recent and proposed massive spending by the federal government will likely put pressure on rates. This coupled with various proposals to modify tax laws relating to gift and estate taxation, individuals should plan on implementing any such plans sooner rather than later.
Planning techniques benefitting from lower rates include the following:
1. Charitable Lead Annuity Trust (CLAT). This trust can be set up to provide annual distributions to charity for a specified number of years. Any growth in the value of the assets above the applicable federal interest rate passes to the non-charitable remainder beneficiaries (i.e. the taxpayer’s children) free of estate or gift tax at the termination of the trust.
2. Intra-Family Loans. It’s a good time to loan money to family members or trusts for members’ benefit. Interest can be charged at very low rates; to the extent the borrowers are able to leverage the funds to generate a return greater than the stated rate, wealth will be transferred without any transfer tax.
3. “Defective” Grantor Trusts. When a taxpayer (grantor) transfers assets to fund this trust, certain rights might be retained causing the trust to be “defective”. This may include the right to substitute other assets of equal value in future years. As a result, the annual income of the trust remains taxable to the grantor even though the income inures to the benefit of the beneficiaries. The effect of this is to reduce the grantor’s taxable estate by the amount of the income taxes paid annually. These trusts are often used to sell assets expected to grow in the future to the trust in exchange for a low-interest rate promissory note. The grantor does not recognize gain from the sale, and no income is recognized on the interest payments. The appreciation in the assets will be realized by the next generation without any transfer tax.
4. Charitable Remainder Trust. If a current income tax deduction is more important than saving transfer taxes, this trust may be implemented. The trust will make annual payments to its beneficiaries for a period of time. At the termination of the trust, the principal balance goes to the specified charity. This “remainder interest” is calculated at a present value to determine the current charitable contribution income tax deduction available to the donor. Lower interest rates translate to a larger remainder interest, and thus larger income tax deduction.
5. Grantor Retained Annuity Trust (GRAT). A grantor transfers assets to the trust and retains the right to receive specified payments from the trust for a specified number of years. At the end of the trust term, the accumulated principal of the trust passes to the specified donees, often the grantor’s children.
The annual payments can be structured so that the present value of the annual payments will equal the value of the property transferred to the trust. The trust is said to be “zeroed-out” because the donees’ remainder interest has no value for gift tax purposes, thus no gift tax exemption is used and no gift tax is due. To the extent, the increase in the value of the assets exceeds the annuity stream paid to the grantor, the assets remaining in the trust pass to the beneficiaries becoming a tax-free gift.
These are just some of the planning opportunities your William Vaughan advisor can discuss with you. We encourage you to take this important step now to avoid potentially detrimental changes which have been proposed in Washington. Early adoption and implementation have perhaps never been more important.
Connect With Us.
wvco.com | 419.891.1040
Categories: Estate Planning, Tax Planning