Mark: Welcome to Unsuitable on Rea radio, the unique financial services and business advisory show that challenges your old school business practices and the traditional business suit culture. You’ll hear from industry professionals who think beyond the suit and tie to offer meaningful, modern solutions to help you enhance your company’s growth. I'm your host Mark Van Benschoten. Today I have with me Melane Howell who's a tax manager who helps our clients do some tax planning with some innovative solutions. Melane wants to help you close out the year with a bang and give you some you to set the stage for an amazing 2016. Melane welcome to Unsuitable.
Melane: Hi, thanks. Great to be here Mark.
Mark: Really glad you're here. I know that you like to fish, have you been fishing lately?
Melane: I haven't.
Mark: No?
Melane: Unfortunately. I know, I did a lot later in the summer but early fall it's a little tougher to get out and fishing unfortunately is not quite as good. I may have to wait until it's ice fishing season, which I'm going to try for the first time this year.
Mark: You're hearty there. Let's go back to the last time that you went fishing, was it successful?
Melane: It was successful. It was a rough day and it started off very slow but we made some changes to what we were using on the end of our poles and it ended up being a great day.
Mark: I assume that your success wasn't luck, that probably some planning need to take place prior to even going out on the water or from the bank or wherever you happen to fish from, what rods to bring, what reels, what baits, lures, things of that sort, right?
Melane: Absolutely. It always changes, meaning sometimes you get out there things are a little different than you anticipated. You have to make some changes but you have to be prepared for those changes. That's what can make or break a good day.
Mark: Yeah, it's not luck, it's preparation, it's planning. Correct?
Melane: Correct. That's very true.
Mark: That would apply to year end taxes, correct?
Melane: Of course.
Mark: You would think we set this up before but we didn't. I thought of all of that on myself, thank you very much. Just like fishing, taxes, planning needs to be involved. On your fishing trip, your last successful one, when did you start planning for that?
Melane: It was usually a few days before. We would check the weather, see if it was even going to be a suitable day to go out, check with some other people, see what they had been catching. At that point we'd made some decision, what to bring, so that when we got out there we were prepared. You know that's really what is so important with tax planning and that sometimes people overlook that until it's too late. Maybe you're in the following year and that pre-planning portion is really, really crucial. A lot of times-
Mark: Can I interrupt for a second?
Melane: Yes.
Mark: People will show up the following year, after year end and want to do tax planning for the back year?
Melane: Which is way too late. The window is closed.
Mark: You know, I'm not the smartest guy out there but how would you do tax planning when the year is already gone?
Melane: That's the key, is that a lot of times we see individuals that have already made some decisions that impact their taxes. If they had been a little bit proactive and come to us and given us a call we could have sat down with them before year end and really given them some good tips and advice in order to save his tax dollars.
Mark: It must be some fun conversations to have with people.
Melane: Well of course they're saving money, who's not excited about that?
Mark: It's saving money, we're not talking about cheating the government correct?
Melane: Correct. No. The great piece about this is that good, sound tax advice is a very important commodity. Followed within the rules and within the regulations of the tax code, you can save dollars, you just have to know how to do it.
Mark: We're here last quarter of the year, what's something you would suggest for the listeners?
Melane: It would depend on if you're looking at an individual return or a business return.
Mark: Since I'm an individual and it’s all about me, let's go the individual route.
Melane: Okay. All right, we'll start with that. A lot of times at the fall you're switching out your clothing and maybe there's things that you haven't worn for a while.
Mark: Can't fit into, that's me. That's just me talking.
Melane: Right. Clean out your drawers, anything that's in good condition, give it away, make sure you document it. Usually Goodwill or Salvation Army, they publish those guides that are on the web. They have listings for individual items and using those guides and those values you can go ahead and make some donations and really save some tax dollars there. Also you're being charitable, which is kind of nice too. Another thing you can do at the end of the year is if you itemize your deductions, we're going to assume you do that, you can prepay some items. Let's say you pay some estimates to the state authorities or the city's, you can prepay that in order to get a tax deduction for that year instead of waiting until the following year.
You can also do the same thing with your real estate taxes if you're a home owner. You can prepay some of those and use what we call bunching, in that you pay a couple years once and then the next year you skip. Now of course if you've got the middle tax going on which is the alternative minimum tax, sometimes those things don't count so you really have to work with your tax advisor and decide what the best strategy is for you.
Mark: Since we're on the individual side, what would you recommend? What should that relationship be with an individual tax client and with somebody of your stature?
Melane: You know, a lot of times individuals come in, it's once a year and we try and do our best. We speak with them and we do a great job on their return and talk to them but what we really like to do is be tax advisors and touch base and keep abreast of what's going on with your tax situation throughout the year, be that maybe once a quarter if you have a lot going on with your taxes. Maybe it's even twice a year. At that point we can look at everything and decide what may be the best for you before the end of the year and do some tax planning mid-year and then maybe [inaudible 00:07:06] things up and do some tax planning at the end of the year.
Mark: This communication sounds like that's what you're advocating here is communication throughout the year, not just at year end. I'm getting my knee replaced here in a couple of weeks and they said that I need to let my dentist know that I'm getting my knee replaced. I thought that was the craziest thing but they're saying that you need to let all your healthcare professionals know that you have this going on. That sounds similar to what you're saying, you need to let us know what's going on.
Melane: You know I tell some of my clients when a big legal decision is coming up usually the thought is "I need to contact my attorney before I sign everything" or anything at that point. A lot of times us CPAs were overlooked in that they forget to contact us before they make a big financial decision. At that point, sometimes if it's after the year end it's too late. My biggest piece of advice is if something is significant going on in your life that has anything to do with finances, yes contact your attorney but also contact your CPA. It's really important.
Mark: Great. Since we’re all CPAs, it’s probably more important.
Melane: Sometimes the attorney and the CPA work together if you have somewhat of a unique or a situation where they both need to consult with each other. I've seen some success stories with that as well.
Mark: I would think that clients would want to make sure that their CPA and the attorney are working together and they would demand that and they would expect that and if it's not working then something needs to change.
Melane: Correct. Correct, that's the goal, is to get a good team in place and make sure that we're all communicating with each other efficiently and frequently.
Mark: Efficiently? For podcast listeners we just had a thing on efficiency with Kyle Stemple talking about efficiency, some recurring themes here. We talked a little bit about the individuals, what about on the business side? I know we only have a few moments but what can you tell us from tax planning from a business side?
Melane: Business taxes are changing every year. There's different rules for each different business that you have and what type of business and how you're organized. It is important to make sure that you're contacting your CPA, if you're starting a business or even meeting a few times a year if you have a business in place and talk about what you're income is going to be for the year, what your profit is going to be, maybe what your losses are going to be and plan for that. If let's say you're having a fantastic year, there are some ways to-
Mark: Legally.
Melane: Yes, absolutely. There are ways to reduce your taxable income for the current year in relation to your business. The biggest tip on this is go out and buy some equipment or buy some supplies that you need, with the supplies something that you'll use up within a year, with equipment there's a lot of accelerated depreciation rules right now that are in place that are great tools for business owners to reduce their taxable income for that year and yet have the benefit of some new equipment for their business.
Mark: Any examples you could tell us about maybe a success story? Let's try to be upbeat and positive with taxes, about some planning that think really stuck out?
Melane: Yes. It was an individual and there was a stock buyout and it was going to happen at the end of the year, or that's when it was planned. With some discussions with the company they went ahead and pushed it to early the next year. We had the entire year to plan for that very large gain and work with a financial advisor to maybe harvest some losses as far as selling some other stock on the market to net those two together and reduce the taxable gain.
Mark: I bet the client was happy.
Melane: Absolutely. Again, it's all about saving tax dollars and we all like to hear about that.
Mark: Legally.
Melane: Yes.
Mark: Anything on a business side, any example on the business side that you can think of?
Melane: I'm trying to think. You know, I did have a ... It was a business owner in the agriculture business, it was a farmer. Sometimes with farmers, they harvest crops and then the companies that buy those crops from them sometimes can agree to pay, if they're on a cash basis, pay them in the following year for the crops that were produced at the end of the year. Sometimes that can provide some tax planning opportunities and obviously recognize the income, but sometimes it's better in one year versus the other.
Mark: I think you helped me out, we have a client we'll call him Brad, you helped me out with some planning on him. He was a cash basis tax payer and we had him accelerate some payments to make sure that he got those payments in the proper year instead of differing those payments out, and he was very happy with that strategy also.
Melane: Thank you.
Mark: You forgot that one.
Melane: I did.
Mark: I think people think about tax planning Melane, they think just the federal but it's not just the federal tax is it?
Melane: No it's not. Right now Ohio has some great incentives for small business owners with what we call pass through entities, in that if you have income from a business that ends up and is reported on your personal tax return, Ohio is allowing you to exclude quite a bit of that income from your tax return, and then the remainder for next year would be taxed at a flat rate. That's just a way to encourage businesses to start and remain in Ohio. We've been seeing some individuals that have been preparing their own taxes or maybe they've even been prepared somewhere else, they're missing that. We've been doing amended returns for that, and obviously when we pinpoint how much we save clients in tax just by that one tax incentive
Mark: Legally.
Melane: Yes. It's amazing, and that's just more dollars that they can use to reinvest in their business and again add some equipment or hire some new employees. It's all about growth in Ohio.
Mark: I think people often overlook ... They plan for the federal and they might miss some opportunities at the state and local level.
Melane: Correct.
Mark: Joe Popp with Rea did a session on the affordable care act but I think obviously some level of planning goes into that, not to put you on the spot about ... But I think obviously planning there is important from a tax stand point.
Melane: Yes. You know with the Obamacare or the affordable care act, whichever you like to refer-
Mark: We're non partisan, we'll be affordable care.
Melane: Okay. There's a penalty if you don't have health insurance for 2015, it was in place for 2014 but it's going up for 2015. You really need to make sure that you have some sort of health insurance for 2015. I want to talk about, if we have a few minutes, a tax planning disaster related to that exact item. I had a client, he was starting a business and he had enough income, or not enough income, to actually take advantage of some of those tax credits that they were providing to individuals that had affordable care or [inaudible 00:15:36] to the affordable care act. They were getting those subsidies every month. How that works is that at the end of the year, the one you file your tax return, if your income is about the same as it was the year before then you don't have to pay any of those subsidies back but if it jumps up then of course you're going to have to pay back those subsidies, which is exactly what happened. In order to start his business he took money out of his 401k early-
Mark: Paying a penalty?
Melane: Yes. Not only did he pay tax on the income, he paid the 10% penalty and it was enough of an income jump that it raised his income enough that he had to pay back all-
Mark: The subsidy?
Melane: Yes, all of the subsidy at the end of the year.
Mark: Oh my goodness.
Melane: It was a disaster. Again, had we been involved before that, we probably would have advised him to look at other avenues for raising funds to start his business.
Mark: A loan from a family member?
Melane: Right, a loan from a family member. Maybe it's a small business loan from the SBA, maybe it's-
Mark: Our client Brad, all the money that we saved him, he could have ...
Melane: Absolutely. That's one of those disasters that you never like to see. It was a learning-
Mark: Wow.
Melane: Yeah.
Mark: Wow, an expensive lesson.
Melane: It was a very expensive lesson.
Mark: We're running out of time, some other questions about planning. We're heading towards a week end and we're going to go out karaoking, would you plan for that?
Melane: Would I plan to go out karaoking?
Mark: Yeah, pick a song, rehearse?
Melane: Maybe in the mirror as long as no one was watching. It's got to be about the show and you've got to look good later but you never want people to know that you've rehearsed beforehand.
Mark: Okay. One last question we ask all of our guests is, if you could have one superpower what would it be?
Melane: Oh gosh. I would probably be a shape shifter.
Mark: A shape shifter? Do you watch Avatar.
Melane: I don't, I don't watch Avatar but there are so many times ... Okay, I know you can't see me on camera but I'm very short, there are so many times where I'm like "I wonder what it would be like to be tall" or I even wonder what it would be like to fly around for a little bit. I know that sounds corny but that's what I would be, it would be a shape shifter.
Mark: You might be short in height but you're tall in stature here at the firm.
Melane: Thank you.
Mark: Thanks for joining us today Melane and thank you to our listeners for tuning in. If you want to find out more about the benefits of year end planning check out our website at www.reacpa.com/podcast. You'll find some links to valuable resources to help you with your tax strategy. Don't forget to subscribe to Unsuitable on iTunes or SoundCloud and remember to share the wealth with your friends and colleagues. Until next time, I'm Mark Van Benschoten for Unsuitable on Rea Radio encouraging you to loosen up your tie and think outside the box.
