As year-end approaches, our Tax Practice Group has compiled a list of action items to consider from our tax attorney perspective to align your business and, of course, save taxes. Actually, many of the items are important considerations throughout the year.
Traditional Tax Planning Tips and Considerations
With President-Elect Trump expected to lower income tax rates, this is likely the best time to defer income to 2017, while accelerating deductions (especially those that may be repealed). One way of deferring income is setting up a qualified escrow / intermediary arrangement with respect to a sale of investment property before year-end to implement a potential like-kind exchange (and if the exchange does not occur, the gain would be deferred to 2017).
- Consider whether you have sufficient basis in your business interests (i.e., interests in S corporations, LLCs or partnerships) to absorb any losses incurred during the year or carried over from prior years.
- Consider additional equity investment in your business to:
- Fund the purchase of capital equipment and qualify for up to $500,000 in current deductions as well as bonus depreciation
- Qualify for 10% InvestOhio state income tax credit.
- Determine if any businesses are potentially insolvent or have debts that are potentially uncollectible to facilitate planning for a worthless stock deduction.
Top 4 Employee Benefit Planning Considerations:
- Consider adopting an employee benefit plan. Determine if you have a nonqualified deferred compensation plan that must comply with IRC § 409(a) and/or ERISA. This can be a trap for the unwary.
- Consider whether you must have a wrap-around health and welfare plan document. This is required for all health and welfare plans with 100 or more participants. We see this often in deals, audits etc. where a company is filing one Form 5500, including all health and welfare benefits under one filing, but does not have one plan listing all benefits. Without a wrap-around document, a company is subject to penalties every year a separate filing is not made for all health benefits (vision, medical, dental, STD, LTD, etc.)
- Is someone reviewing all qualified retirement plan documents drafted by a third party administrator (TPA) or accounting firm? Service agreements for TPAs and accounting firms have disclaimers. A review of these documents may uncover correctible issues later subject to large penalties in an Internal Revenue Service (IRS) or Department of Labor (DOL) audit.
- Have you done a Request for Proposal on your retirement plans to benchmark investment advisor and other service provider fees in the past 3-5 years? DOL recommends bidding on fees every 3-5 years. There is also case law to support this. In an audit, DOL will heavily scrutinize decisions on fees, making sure you are often reviewing and understanding the fees. Also, there is substantial litigation addressing excess fees.
Top 2 Charitable / Nonprofit Planning Considerations:
- As a tax-efficient charitable gift, if you are selling real estate, stock or LLC interests, consider making a gift of the real estate or business interests to charity before there is a binding obligation to sell.
- Consider the potential tax benefits of creating a separate giving vehicle (such as a corporate foundation). We can help you weigh the costs, in terms of time and money, to create and maintain such an entity.
Top 2 Multistate Tax Considerations:
- Making sales / doing business outside Ohio? When was the last time you evaluated your multi-state tax compliance obligations?
- Consider multiple entity structuring to protect assets and isolate business income producing activity from certain state taxation.
Top 3 General Business Planning Considerations:
- Have you reviewed your worker classifications (i.e., employee vs. independent contractor)?
- Consider a legal audit to address initial and ongoing filing obligations not being fulfilled.
- Do you have a buy-sell agreement or business succession plan in place for your business? If so, are they current? Have there been significant changes since the agreement was initially adopted (e.g., divorce, admission of new members, significant change in company valuation)?
Let a member of our team know if you would like to move forward on any items or if you need additional information. We are happy to meet with you and/or your accountant.