Jan 03, 2022
Have your sales been hit by import competition? If so, the federal Trade Adjustment Assistance for Firms (TAAF) program may be able to help. For Ohio manufacturers, the program is managed by the Great Lakes Trade Adjustment Assistance Center (GLTAAC) who helps qualified manufacturers identify, develop, staff, and pay for critical business improvement projects. GLTAAC clients have received up to $75,000 in matching funds.
While TAAF matching funds are extremely beneficial, GLTAAC clients also value the planning assistance received from their experienced team of manufacturing professionals. The guidance helps to clarify which projects can best support each client’s growth strategy while matching funds help clients fast-track those important efforts – regardless of the project’s size. Here are just a few case studies to demonstrate the value of GLTAAC and how leveraging funding can aid your organization:
- Big impact from a quick and concentrated effort for an instrumentation manufacturer – An Ohio GLTAAC client had recently changed its name and required a rebrand with a new logo. After multiple conversations with key company stakeholders and a marketing consultant, a new logo was developed. The company’s website now features their re-designed logo and the GLTAAC client states, “This TAAF co-funded project was a simple, small – but strategic – marketing effort. Two weeks of intense work and results.”
- TAAF matching funds saved both money and time for Ohio foundry – When their existing ERP system was being phased out, this GLTAAC client knew they would use TAAF matching funds for outside IT expertise to migrate to a new system. However, they also recognized their shortage of a key resource: time. They elected to utilize TAAF co-funding to hire a consultant to serve as the internal project manager for the entire ERP upgrade process. The consultants managed and ran all aspects of the upgrade, which enabled the project to be completd on schedule without disruption. Total cost for both consultants: $91,000 (TAAF paid 50%).
If import competition has hurt your sales, don’t put off learning more about TAAF and GLTAAC. Here’s how to get started.
STEP ONE – Contact GLTAAC Project Manager, Jani Hatchett at email@example.com or 734.998.6227. Jani can quickly outline the TAAF program and help you determine whether your firm would qualify and provide the next steps.
Categories: Manufacturing & Distribution
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
Dec 20, 2021
State of the Global Economy
The same issues have been covered in the news cycle for months; supply chain malfunctions, production shortages, inflation, increased tariffs… all the reasons why businesses are facing heightened costs of resources this year. COVID-19-related disruptions have affected distributors and manufacturers worldwide, with gradual increases in the consumer prices index every month since the third quarter of 2020 (apart from May ‘21.) Numerous products including crude oil and petroleum products, natural gas, leather, lumber and wood, chemicals, and metal products have all seen substantial inflation (from 25% – 200%) in the last twelve months.
As costs go up, one tax leveraging option for those required to maintain inventories is the LIFO (last-in, first-out) inventory method. By using LIFO, goods sold throughout the year are deemed to come first from any goods purchased or produced during that year, then from the beginning inventory. As a result, inflation on items in the ending inventory is already included in the cost of goods sold, which may result in a lower taxable income.
LIFO is an alternative inventory valuation method, used by companies during periods of increased inflation to defer significant taxation. When adopting a LIFO inventory method, taxpayers can measure the effects of inflation on their internal and external prices by assuming the most recently purchased items are being sold first. This is achieved through an “inventory price index computation method,” using indexes published by the Bureau of Labor Statistics.
First, the taxpayer must ascribe value to all inventory (including beginning inventory) at cost. Then, say the LIFO method was adopted in the tax year 2020, the taxpayer should value all inventory at cost, ratably, for 2020 through 2022 and account for any necessary adjustments. In theory, the result of those adjustments would reflect the impact of inflation on company inventory and would then be deducted from taxable income and removed from the balance sheet.
It is required all taxpayers adopting the LIFO method for tax purposes, apply a LIFO computing method to book income. Additionally, all financial statements issued by the taxpayer must reflect computation under a LIFO method. To adopt LIFO, taxpayers must attach Form 970, Application to Use LIFO Inventory Method, to their federal income tax return.
Adopting a LIFO inventory method may not benefit all taxpayers. Companies considering the use of a LIFO method for the 2021 tax year should first perform a cost-benefit analysis in order to answer the following questions:
- What are the potential tax savings for the 2021 tax year if the company switched to LIFO?
- Historically, what trends has the company experience during periods of inflation?
- Do historic trends and potential tax savings warrant a switch to a LIFO inventory method?
- What costs are associated with implementing & maintaining LIFO computation in-house?
- Are the potential tax savings greater than the projected costs?
As always, our team of advisors is available to help you determine the best approach for your given situation.
Nov 15, 2021
Don’t leave ERTC money on the table!
The Employee Retention Tax Credit (ERTC) is a provision established under the CARES Act which has been enhanced by additional legislation and could provide an immense amount of capital to employers. Unfortunately, statistics are showing the credit is being underutilized. The good news is with year-end planning on the horizon, now is the perfect time to leverage the ERTC.
What is the ERTC?
This is a refundable tax credit employers can claim against certain employment taxes, equal to a percentage of qualified wages and health insurance premiums paid after March 12, 2020, and before September 30, 2021.
For 2020, the credit is 50% of qualified payments, up to $10,000 per employee. Simply put, an eligible business has the potential to request refunds of up to $5,000 per employee for the year.
For 2021, the credit increases to 70% of qualified payments, up to $10,000 per employee per quarter. The credit was intended to run through December 31, 2021, but the passing of the recent Infrastructure Bill put an end to it after September 30. Nevertheless, the credit is still fair game for the first three quarters of 2021. With a maximum credit of $7,000 per employee, per quarter, a business eligible for all three quarters of 2021, could receive refunds of $21,000 per employee. Without question, the ERTC can provide much-needed dollars for eligible employers.
How do I know if my business is eligible?
For most businesses, eligibility is determined by meeting one of two tests; with a third test available for quarters 3 and 4 of 2021, which will be outlined later.
- TEST #1 – A measure of decline in gross receipts. If an employer experiences a significant decline in gross receipts for any calendar quarter, as compared to the same calendar quarter in 2019, they will be eligible for the credit in that quarter. For 2020, this is defined as gross receipts that are less than 50% of gross receipts for the same quarter in 2019, and for 2021, this is gross receipts being less than 80% of gross receipts for the same quarter in 2019.
- TEST #2 – A full or partial suspension of operations. If an employer was subject to any full or partial suspension of operations because of government orders related to COVID-19 they could be eligible. These orders could be Federal, State, county, and/or municipality. Even if your business was deemed essential and was not directly affected by such orders, there still could be avenues to be eligible for the credit.
- TEST #3 – Under a third test, if a business can meet the definition of a recovery startup business, they can claim the credits for the 3rd and 4th quarters of 2021 only (not exceeding $50,000 per quarter). A recovery startup business is any employer that began a trade or business after February 15, 2020, and has average annual gross receipts of less than $1,000,000.
What are some important details to keep in mind?
- First, gross receipts are determined based on the method used for the employer’s tax return. Meaning, if your business uses the cash method for tax purposes, then gross receipts for Test #1 should be calculated using the cash method, even if your financial statements use the accrual method. This could be beneficial for businesses, especially during times when the pandemic was hitting the hardest and collections slowed.
- Another important item to keep in mind is that, for this credit, employers are considered either small or large. For 2020, a small employer is one that, based on 2019 counts, averaged 100 or fewer full-time employees. For 2021, this number increases to an average of 500 or fewer full-time employees, still based on 2019 counts. If a business is above these amounts, they are considered large. Small employer status is more advantageous because it allows qualified wages to include all wages paid. If a business is considered a large employer, qualified wages are limited to wages paid to an employee only for the time that employee was not providing services. For example, if your business is a large employer and operations were partially suspended, but all your employees continued working during that time, your business may not be able to claim any credits on the wages paid during that suspension period. For this purpose, a full-time employee is an employee that, in 2019, averaged at least 30 hours per week or 130 hours per month. As an example, an employer in 2019 who had 5 employees that worked 25 hours per week and 5 employees that worked 30 hours a week, would only be considered to have 5 full-time employees. Early on, a common misconception was that full-time employees were equal to full-time equivalents, which may have caused some businesses to think they were large employers, when in fact that may not be the case.
- Finally, there are several different paths a business could take to qualify for the ERTC based on a full or partial suspension of operations due to governmental orders. As previously mentioned, even if your business was not directly affected by the orders, there still could be ways to qualify for the credit. We encourage you not to overlook this test as it could be very beneficial to revisit.
What are my next steps?
With year-end planning season looming, your William Vaughan Company advisor will surely be discussing this topic with you in the coming weeks. If you are not currently a client, but this topic has piqued your interest and you would like us to look at how this credit might benefit your business, please do not hesitate to reach out to us. As mentioned, the credit has been generally underutilized, so we would love to help your business realize the greatest benefits it can.
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Mike Hanf, CPA, CGMA
Categories: Tax Planning
Nov 01, 2021
Charitable Gift Planning Opportunities
In the third installment to our Timely Estate Planning Strategies Series, we outline how traditional income and estate planning may incorporate an individual’s desire to fulfill philanthropic goals. Giving can be done both while living (receiving current income tax deductions) and through one’s will at the time of death (garnering estate tax deductions). However, given the current ‘perfect storm’ we outlined in the first blog of the series, there is no better time to address your giving strategies.
The estate tax exclusion is currently $ 11.7 million per individual which means persons with an estate less than this will NOT benefit from charitable bequests in their wills. The emphasis for these individuals should be obtaining current income tax deductions while fulfilling their charitable intent. Individuals with taxable estates greater than $ 11.7 million can receive a double tax benefit by making lifetime charitable gifts. The donation is deductible for income tax purposes when the gift is made; the property along with any future appreciation is removed from the taxable estate.
Several opportunities to benefit from current charitable gifts are available. It is important to note, total itemized deductions including charitable deductions must exceed the standard deduction to receive a current income tax benefit. Some of your options include:
- Bunching contributions into one year to make sure you exceed the standard deduction.
- Contributing to Donor-Advised Funds (DAFs). A large contribution to the fund in year one provides the income tax deduction. After which, amounts can be paid from the fund to charities over a designated number of future years.
- Donating to Charitable Remainder Trusts. The remainder interest in a given property is donated to charity, obtaining a current income tax deduction, and retaining an annuity (income) interest in the property during the donor’s lifetime. Or the reverse of this,
- Giving to Charitable Lead Trusts. This provides a charity an annual distribution while the remainder interest passes to a Trust beneficiary in the future.
- Making Qualified Charitable Distributions (QCDs). Taxpayers over the age of 70 1/2 contribute directly from their IRA to a specified charity. The distribution is not taxable and no charitable deduction is taken. Structured properly, this can convert required minimum distributions into nontaxable withdrawals from the retirement account.
Your WVC advisor would love to meet with you and your estate planning team to see how charitable transactions could help you meet your philanthropic goals in a tax-efficient manner.
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wvco.com | 419.891.1040
Categories: Estate Planning