Marshall Jones participates in Alpharetta Mayor’s Corporate Challenge

August 23, 2018 the team at Marshall Jones & Co participated in the Alpharetta Mayor’s Corporate Challenge 5k 2018. The Alpharetta Mayor’s Corporate Challenge raises over $100,000 each year to fund service projects in the area and around the world. A large amount of our team resides in Alpharetta and we loved being able to support the community plus improve our health! Charlie even won a medal for placing 2nd in his age group!

Greg Logan and daughter Lorelei participated in the Kids Fun Run together

Greg Logan and Anna Gusalova still smiling after running!

Charlie Jones and his prized medal!

The Most Talked About Provision of the TCJA

For business owners or individuals who have investments in businesses, the most talked about provision of the new tax law is IRC Section 199 (a)

Since the new law gives C corporations a flat rate of 21%, Congress felt the need to give a tax break to other businesses that are commonly known as “pass through entities”. S Corporations, LLC’s, LLP’s, partnerships, etc.

So, Section 199 (a) was created to accommodate this. It’s very complicated. What it basically says is that an entity’s  “Qualified Business Income (QBI)” MAY qualify for a 20% deduction. But there are tons of exceptions, limitations, and complications.

For instance: Specified Service Businesses (doctors, accountants, consultants, and many more) are limited in their QBI calculations to $415,000 (married filing jointly. MFJ). So a doctor who has QBI of $414,999, can get a 20% deduction of that number, or $82,999 deduction from taxable income. If the same doctor had QBI of 415,001, he/she would get no deduction.

The IRS has just (July 2018) released “proposed” regulations which try to clarify many of the complications. For instance. Does the income from a rental property qualify as QBI? The IRS’s answer is “it depends”. Can you aggregate QBI income from multiple entities that you have interests in? “It depends”.

We will be issuing a series of blog articles dealing with the most common of the items that are affecting most individuals and businesses. Please call us if you have any specific questions. There are planning opportunities for 2018 that can have a large effect of those who come under 199 (a).

Breaking news on cryptocurrency

The introduction of a cryptocurrency ETF (Exchange Traded fund) could catalyze an influx of institutional capital and open a new channel for investment in the sector. On June 26, 2018, the SEC received an application from Cboe Futures Exchange to launch the world’s first Bitcoin ETF

One of the first to launch Bitcoin futures, CBOE (Chicago Board Options Exchange) Global Markets has partnered with Van Eyck Investment and SolidX to introduce a Bitcoin ETF to global markets.

On June 26, the SEC received an application by CBOE to offer clients the buying and selling of SolidX shares, which are currently valued at approximately 25 bitcoin. If approved, accredited investors will be able to trade a Bitcoin ETF in the form of baskets of 5 SolidX shares (100 bitcoin) on the CBOE exchange.

This is one of the biggest news items since the advent of the Bitcoin several years ago. What this basically means is that an investor will be able to invest in cryptos by investing in the stock market through ETFs, and not buy cryptos individually.

Note that the most significant item regarding Bitcoin was the invention of the Blockchain, the technology that allows cryptos and many, many other things to be transferred totally secured over the Internet. This is why the large banks, accounting firms, brokerage firms and real estate companies are investing heavily in this technology. For instance, Etherum, the second largest crypto, has nothing at all to do with currency. It’s a platform for companies to build “smart contract” applications.

Gaining Understanding of the Blockchain

We should think of the Blockchain as another class of thing like the Internet – a comprehensive information technology with tiered technical levels and multiple classes of applications for any form of asset registry, inventory, and exchange, including every area of finance, economics, and money; hard assets (physical property, homes, cars); and intangible assets (votes, ideas, reputation, intention, health data, information, etc.). But the blockchain concept is even more; it is a new organizing paradigm for the discovery, valuation, and transfer of all quants data (discrete units) of anything, and potentially for the coordination of all human activity at a much larger scale than has ever been possible before. This technology has a built-in ‘robustness’ as it stores blocks of information that are identical across its network and can be controlled by any single entity and has no single points of failure. The days of hearing large corporations make public statements  about data breach are long gone. Blockchain technology is the platform that was invented to allow Bitcoin and other cryptocurrencies to function. Bitcoin was invented in 2008 and since then has not had one significant disruption.  This will also lead to the idea of decentralization. Blockchain technology is managed by a network, not one central authority. Stock market trades will become simultaneous and will basically eliminate the need of record keeping.

So, how does this pertain to you? The Blockchain does not need to be necessarily understood for it to provide use in your life. Before using the internet did you actually understand how it works? Probably not, but you used it. Think about the amount of money spent on money transfers. In 2015 the World Bank estimates over $430 billion was sent via money transfer. With the Blockchain this would basically eliminate the middleman. While it may seem foreign now it  will soon become a large part of everyday life.

 

Tax Reform: Effects on Financial Planning

The recently passed tax reform bill has received a considerable amount of press, and for good reason. As the most comprehensive tax reform in over 30 years, the new tax laws will impact every individual & business in America. Its impact also extends to the way we approach financial planning for our clients.

Estate Planning

The most significant change in regards to estate planning is the doubling of the Estate & Gift Tax Exemption. Beginning in 2018, this means that individuals will be able to claim exemptions up to $11.2 million, and $22.4 million for couples. For many high net worth individuals, this could simplify estate planning, as only amounts over the exemption limits will be subject to Federal tax. This provision is set to expire at the end of 2025, at which time the exemption amounts will revert to their pre-2018 levels, with inflation adjustments.

Charitable Giving

For those who are charitably inclined, the doubling of the standard deduction means that giving levels may need to be increased in order to receive a tax benefit. For a married couple, if itemized deductions are under the new standard deduction amount of $24,000, there will be no tax benefit to itemizing. For individuals, this limit will be $12,000. In order to maximize the tax benefits, donors may want to consider the use of a Donor Advised Fund. A Donor Advised Fund allows taxpayers to contribute an amount of their choosing to the fund and take a tax deduction for the full amount in the year the contribution is made. They may then choose to direct gifts from the Donor Advised Fund to specific charities over an extended time frame.

The annual gift tax exclusion has also been increased to $15,000 per person for 2018, meaning that couples can gift up to $30,000 per year without incurring any tax, and without using any of their lifetime exemption amount. Single taxpayers can gift up to $15,000 per person.

IRA Recharacterizations

Under the new tax bill, the ability to recharacterize a Roth conversion is eliminated. Previously, taxpayers had up until the tax filing deadline plus extensions to recharacterize any amount converted from a Traditional IRA to a Roth IRA, if the account had fallen in value, or if the amount converted results in a higher tax than originally anticipated. Under the new laws, this will no longer be allowed. This is one of the few permanent changes within the bill. Note that this change only applies to the recharacterization of Roth conversions; contributions to either Traditional IRAs or Roth IRAs are still able to be recharacterized.

For planning purposes, this means that individuals wishing to convert need to be certain of their ability and willingness to pay the taxes. It will also likely lead to more conservative recommendations regarding the amount to convert in a given year. As always, a potential Roth conversion should be discussed with a tax professional prior to implementing.

Distributions from 529 Plans

Distributions from 529 Plans of up to $10,000 per year, per individual used for the cost of K-12 expenses will now be considered qualified and therefore will be non-taxable. Funds may be used for students enrolled in public, private or religious school. Post-secondary education expenses remain qualified.

While many of the changes within the tax reform bill are temporary and will revert back after 2025, some changes are permanent, including the increase in standard deduction, the elimination of the personal exemptions, the elimination of the ability to recharacterize Roth IRA conversions, and the changes regarding the use of 529 Plan funds.

Effect of new taw law on economy.

New tax law having positive effect on economy

According to the Wall Street Journal, July 13, 2018. The effect of the new tax law can be seen in June government statistics. According to the U. S. Treasury, tax revenues fell 7% in June compared to June 2017. Corporations and Individuals are lowering their tax payments and withholdings due to the lower rates. Even though revenues fell, the budget deficit narrowed to $74.86 billion from June 2017 because of a 9% drop in government outlays.

Keeping Your R&D Credit

 

 

Business owners are often surprised to learn they may be able to claim the Research & Development tax credit.

The credit was originally created as way to encourage American companies to conduct R&D activities domestically. While initially thought to apply to large companies with formal R&D departments, “smaller businesses” in a wide range of industries, such as manufacturing, engineering, software development, architecture, pharmaceuticals, aerospace and defense, metal foundries, chemical companies and others, have discovered they can also claim the benefit. However, it’s important to be aware of best practices when claiming the credit, especially in areas where issues commonly arise, such as a lack of supporting documentation. Mistakes in documenting qualified research can result in missed opportunities and create problems should the company be selected for an IRS audit.

 

 

Common Documentation Mistakes

  • Lack of supporting documentation: R&D tax credit studies are at their weakest when they lack contemporaneous supporting documentation. Studies are often performed after the tax year is closed out. Some studies simply comprise a report that summarizes the findings and a brief description, if any, of the qualifying business component. One of the objectives of an R&D tax credit study should be to answer a common question under audit: Why does this business component qualify? In order to properly address this question, it’s important to take a fluid approach to documentation. No two taxpayers are the same. No two projects are the same. As such, taxpayers may need to be creative in the identification of documents that show how projects meet the qualification criteria with specific emphasis on the presence of uncertainty and experimentation. Information such as project records, lab notes, design drawings, photos of the design/build and testing trials, prototypes and patent applications are needed to corroborate customary R&D expenses. Having access to this information is especially helpful in the event of an IRS audit.

 

  • Informal documentation process: If a company is considering claiming the R&D tax credit for a project, it would be useful to implement a formal documentation process before beginning. Because many companies don’t understand who should be documenting, what they should be documenting and when the process should be occurring, it’s often left as a task to complete at year-end. When this happens, a single person is often assigned the task of poring over hundreds of documents to find proof of qualifying expenses. The result is that expenses are often missed, and the potential credit value is diminished. To overcome this, a best practice would be to implement a process that collects relevant information on an ongoing basis, while the R&D activities are occurring. The more thorough the process, the greater the likelihood that qualifying expenses will be captured and used appropriately when claiming the credit.

 

  • Lack of clarity: A common issue in the documentation process is that it’s unclear how the various expenses, personnel or other items relate to the R&D project. Remember that an IRS agent will not be familiar with your business, product or research process. Because they will be the primary judge of whether an expense qualifies toward the R&D credit, it’s essential to ensure the relationship between the expense and qualifying activity is clear. Avoid incomplete or inadequate descriptions, general statements that sound canned, and documentation that is not clearly related to the project. The more you rely on an IRS auditor to figure out how your documentation supports expenses, the greater the risk of exposure.

Charlie Jones featured on Atlanta’s ‘Shrimp Tank’

Last week, our company was invited to be on the national broadcast The Shrimp Tank which is produced here in Atlanta, GA. We had a great time on the show and gave lots of tidbits and nuggets to all of the listeners on how to become a better business owner.

To that end, we wanted to share the post show wrap up video that was shot on site and say thanks to all of you for allowing us to work with you. None of this could be possible without having the best clients on the planet!

If you want to hear a download of the full broadcast, please go to www.shrimptankpodcast.com. They have the entire show on the website and some fascinating articles to read as well.

Thanks again for all of your support for our company.

Changes we expect to see with divorce

Divorce is stressful enough, but the new tax bill may ramp up the complications and anxieties for couples who are calling it quits.

Divorce experts are predicting a confusing, turbulent year, thanks to the tax plan’s reversal on who pays taxes on alimony. For more than 70 years, the tax law allowed the higher-earning spouse to deduct the alimony they paid to their exes, while the “receiving” spouse was taxed at a 15% rate.

But the new Tax Cuts and Jobs Act reverses that long-standing arrangement. Starting in 2019, the higher-income spouse will lose the alimony deduction and must pay federal taxes on it, while the receiving spouse won’t have to pay taxes. The new tax bill affects divorce agreements signed after Dec. 31, 2018, while divorces settled before that will be grandfathered in under the old tax bill.

Those dynamics may result in a tense year of negotiations for couples who are splitting apart as higher-earning spouses likely push for a settlement in 2018, allowing them to lock in a tax deduction. Lower-earning spouses may want to delay the settlement until 2019, believing the new tax law will benefit them, he said.

Where to start

Given the complicated mix of emotion and finances in divorce, it can be helpful to rely on a team of experts, including a divorce attorney, a divorce coach and a financial analyst with expertise in divorce. The analyst can help spouses understand how the tax bill will affect their settlement.

A detailed financial analysis can help put things in perspective, including how the new tax code will affect spouses. Examining a post-divorce forecast of your cash flow — and how the tax law will affect it — will clarify whether it’s possible to maintain your current home or where you might need to cut back, for instance.

Take a step back

A spouse who wants to argue for lower alimony payments based on the new tax code may want to examine how much their fight will cost in legal fees. The typical hourly rate for a divorce attorney is $350, although it can be as high as $1,000 an hour in big cities.

How it affects happily married couples

Married couples with prenuptial agreements should also pay attention to the new alimony taxation. That’s because most of those prenups likely include alimony provisions based on the prior tax law.

Those prenups probably have to change. If you are happily married, this probably isn’t even on your radar. But they’ll have a big ‘uh-oh’ moment if they go through divorce and have this in their prenup.

New Georgia tax legislation will benefit all Georgia taxpayers

 

Governor Nathan Deal signed major income tax changes in response to the federal Tax Cuts and Job Act of 2017 (“TCJA”), on March 2, 2018.

The major components of the legislation are as follows:

  1. The top individual and business tax rates have been reduced to a maximum rate of 5.75%
  2. The standard deduction for individuals has been increased to $ 6,000 for married filing jointly taxpayers, and other increases for other classes of taxpayers
  3. Conforming the Georgia code to the newly enacted federal tax law changes

 

There are more specific details concerning the legislation, but the above three major changes cover the basics. For information on how these changes will affect your individual situation, please give us a call.