Once tax season was completed, we said goodbye to an employee who has been with us for 5 ½ years.  Alyssa Scher left to take a job with the Huntington Community School system to be able to spend more time with her family.  We are sad to see her leave the firm but understand her decision when tax season is a long 3 ½ months with a lot of hours.  Alyssa helped prepare payroll filings, completed monthly and quarterly bookkeeping, assisted in trust, estate and gift tax returns and also completed individual and business tax returns.

This tax season we had two interns with us and we are happy to announce that we have hired one of them to work with us full time going forward.  Blake Gray, a Warren, Indiana resident, will be working with us full time upon graduation from Huntington University.  Some of you have likely already had the privilege of having conversations with him as he jumped right in assisting with the quarterly payroll filings.  He will be handling bookkeeping, payroll and fiscal year tax return preparation during the summer.  Blake did a fantastic job during tax season, and we are eager to work with him in the years to come.  Blake plans to sit for the CPA exam this summer and fall.

Sherry’s attention to detail, while keeping the broader picture in mind, has been invaluable. Her willingness to put in extra time and effort to help us meet deadlines has demonstrated a commitment to excellence that we have come to depend upon. She has helped keep all of us on track and on time. In addition to her knowledge and skill, she has been a friend to many of our clients and staff.

We know you all join us in wishing Sherry well as she starts a new chapter in her life.

In other staffing news, Kline’s CPA Group has 2 college interns with us this year.  Blake Gray is a Senior at Huntington University who resides in Warren, Indiana and Chandler Bauer is a Senior at Manchester University who resides in Huntington, Indiana.  Both are learning about and preparing personal tax returns, business tax returns, some payroll filings and assisting with other office tasks around the office.

Have you ever thought about creating a scholarship for low to middle income students to attend non-public schools? Now might be the best time to start a scholarship for a local private school. Indiana has a tax credit available to individuals and corporations for contributions to a scholarship granting organization (SGO). The Indiana tax credit is 50% of your contribution.  The only limitation is Indiana will issue $14 million dollars in credits from July 1, 2018, through June 30, 2019.  You can check the total credits claimed during the period by clicking here.  Any unused SGO credit claimed by the taxpayer in the current year can be carried forward for 9 years, but is never refundable.  You will also want to plan your other nonrefundable credits accordingly, i.e. Indiana college contribution credit, Indiana 529 Plan credit. If you have Indiana tax withheld from your sources of income, the withholding would be refunded on your Indiana tax return if you decide to make a contribution to an SGO.

Another great advantage of the SGO tax credit is you are allowed to take it in multiple years. A taxpayer can make a contribution in 2018 and as long as there are credits remaining for the SGO tax credit, another contribution could be made in early 2019. You will want to make a decision on your first contribution soon as the contribution needs to be received by the SGO before December 31, 2018, to be eligible as a tax credit on your 2018 Indiana tax return.

If you would like to set-up a scholarship for a non-public school, you will want to contact a scholarship granting organization. Listed below are the approved SGO’s for Indiana. If you have questions about the functions of the program, you will want to contact a member from the organization of your choice. If you have a question on the tax credit, please contact our office and we can assist you with your questions.

School Scholarship Tax Credit Program

Approved Scholarship Granting Organizations as of 9/22/17

Elkhart County Community Foundation

P O Box 2932

Elkhart, IN  46515

Amanda Jamison, Program Officer

(574)295-8761

mailto:amanda@InspiringGood.org

Date of Apprval:  February 2, 2015

Institute for Quality Education, Inc. (formerly Educational Choice Charitable Trust)

101 West Ohio St., Suite 700

Indianapolis, IN  46204

Mary Eaker, Program Director

(317)951-8781

mailto:maryeaker@h4ged.org

Date of Approval: January 13, 2010

School Scholarship Granting Organization of Northeast Indiana, Inc.

915 South Clinton Street

Fort Wayne, IN 46802

Marsha Jordan, Superintendent

(260)442-4611 Ext. 3316

mjordan@diocesefwsb.org

Date of Approval: March 5, 2010

Sagamore Institute Scholarships for Education Choice

2902 North Meridian Street

Indianapolis, IN 46208

Laurel Christensen, Senior Fellow and Director

(317)472-2050

laurelc@sagamoreinstitute.org

Date of Approval: March 4, 2011

The Lutheran Scholarship Granting Organization of Indiana, Inc.

1145 Barr Street

Fort Wayne, IN 46802

Jon Dize, SGO Administrator

(260)203-4509

info@lutheransgo.org

Date of Approval: October 30, 2012

LaGrange County Community Foundation, Inc.

109 E. Central, Suite #3

LaGrange, IN  46761

Jennifer Tuttle, Executive Director

(260)463-4363

mailto:jtuttle@lccf.net

Date of Approval:   August 26, 2016

Professional Athletes of Indiana

6678 Guion Road

Indianapolis, IN  46268

Jermaine Chaney, President

(317)339-9087

mailto: jchaney@chaneyfinancialgroup.com

Date of Approval: September 22, 2017

Estate planning is an ongoing process. If you are young, your plan might consist of simply a Will. If you are a young couple, and you have children, it is important to name a guardian and arrange to provide for your children and spouse in the event of an unexpected death or incapacity. As you start to gain financial success, preserving assets and avoiding taxes become important factors in estate planning.

If you die without a Will, the court in the state you live will choose an administrator for your estate. If you have minor children, the court will also appoint a guardian for your minor children. The court’s choice may well not be the person you would have selected. The property you own in your individual name will be distributed according to the state intestacy laws. This may not be the way you want your property to pass. If your heirs include minors at the time of your death, the minors will automatically receive their shares of your assets outright once they reach the age of majority, whether or not they are experienced enough to manage their inheritance sensibly.

Presently, a top marginal tax rate of 40% applies to taxable gifts and estates. If your net worth is close to or over the federal exemption amount ($5,450,000 per person for 2016), your estate plan needs to include tax planning also. (The exemption amount increases to $5,490,000 per person for 2017.) Unless you plan for taxes, they can consume a large part of your estate. The estate tax is complex and requires not just looking at your current net worth, but also prior gifts and the ability to transfer any unused estate exemption amount between spouses (referred to as “portability”).

For calendar year 2016, the first $14,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts.  The annual gift tax exclusion will remain at $14,000 for 2017.

If you are a business owner, this brings another facet to estate planning. It is important to arrange in advance for the transfer of your business at your death, incapacity, and retirement. If you want family members to continue the business after your death, it is important to be sure there is enough cash available to cover estate tax, if applicable, and to cover expenses. If you do not plan ahead for this, your heirs may have to sell the business or business assets to cover taxes and expenses. A buy-sell agreement put in place now can make for a much smoother transition at death, incapacity and retirement.

While we cannot prepare your estate plan documents, as this must be done by your attorney, we can assist you in updating your plan. We can help you estimate your net worth, determine how your assets are titled, and review your current plan if you have one. We can help you get a plan in place if you do not have one, or we can discuss the steps to update your estate plan to meet the ever changing laws and to reflect any personal changes in your lives. Everyday personal and family changes can make yesterday’s estate plan inadequate today. Give us a call if you would like to discuss your estate plan.

Congratulations to the Nidlinger and McKinney families for being presented this prestigious designation for 2016. We are privileged to work with many Master Farmer recipients.  You can find a listing of the past Indiana Master Farmer recipients by clicking here.

Do you give to charities with cash, but often want to give more? Did you know you can gift publicly-traded securities directly to a charity and receive a tax donation for the fair market value? What’s best is the built-in appreciation of the security is not reported as a sale on your individual tax return. Instead of enforcing sale treatment to record the gain as taxable, the IRS allows a double benefit to taxpayers. Section 170(b)(1)(A) of the Internal Revenue Code allows gifts of appreciated securities to not-for-profit entities to be valued for charitable contribution purposes at the fair market value, but it must be held by the taxpayer for longer than 12 months before the donation to the organization.  Taxpayers are encouraged not to donate stocks that have an unrealized loss, as the rules for donated securities with unrealized losses are treated differently.  When the taxpayer gifts the security, the donation record will show the fair market value of the stock on the date of contribution. The charity is allowed to retain ownership for as long as it wants or it can sell the security upon receipt. There is no requirement for the charity to retain ownership for a length of time. Normally, a contribution comes from after-tax dollars, meaning a taxpayer pays income tax on the cash before the contribution is given. In the case of gifting securities held for at least 12 months, the gift comes as a pretax contribution. In the case of a charitable contribution, here is the tax savings when comparing a cash gift versus a gift of stock valued at same dollar amount.

Taxpayer gives a local charity a check for $10,000 in December 2015 after he has sold his IBM stock that he has owned for several years.  Taxpayer had a cost basis for his stock of $2,000, which results in Taxpayer recording a long-term gain of $8,000 on his 2015 tax return. The capital gain is subject to a 15% tax rate, which results in tax of $1,200 owed on the gain. Since Taxpayer has given all proceeds to the charity, he pays the $1,200 from his own pocket.  Taxpayer receives a charitable donation of $10,000 that will help offset the tax owed on the gain.

Assume now, Taxpayer gives the charity his IBM stock worth $10,000 in December 2015. The charitable donation is $10,000 since Taxpayer has owned the stock for several years. Taxpayer does not have any taxable capital gain since Taxpayer gifted the stock. Taxpayer can report a non-cash charitable contribution of $10,000. The gift of the publicly-traded security has now saved the taxpayer $1,200 in federal tax and will also save state and local taxes, since the capital gain would have been included as state income.

When a taxpayer makes non-cash contributions such as this, Form 8283 is required to be filed with the tax return. The IRS requests the name and address of the charity receiving the property, as well as the date of purchase by the taxpayer and the date given to the charity. For securities, the IRS also requires the value on the date of the gift and the taxpayer’s cost basis when purchased.

We are nearing the end of 2015 and if you are looking to benefit a charity, you might want to consider gifting stocks.  If you have thought about selling stocks to receive the cash needed to make your additional contribution, consider asking your broker to give the stock directly to your charity of choice.

Have you been considering leasing equipment as a result of the smaller margins in corn and soybeans?  Your bank or dealership may even have contacted you about lease transactions for new equipment recently as grain prices continue to stay at lower levels compared to the past several years and depreciation rules are not getting updated in a timely fashion.  Leasing equipment has some benefits, but you must be careful how you enter the lease agreement.  The benefits of a lease are the shorter term, normally the lease term is short enough for all maintenance to be covered under warranty, and the lease payment is a fixed amount that could be fully deductible when paid.  For the annual lease payments to be deductible the lease has to qualify as an operating lease.  The differences in operating vs capital leases is another topic that will not be discussed in this article.  With this article we hope to make you aware of a couple pitfalls when entering into a lease if you are trading an asset you already own.

When you own an asset and then decide to trade in the equipment for a leased asset, the transaction is not considered a like-kind exchange.  For tax purposes, it is as if you have sold the original asset, even though there has been no cash transaction.  The sales price of this paper sale is the fair market value of the trade-in asset.  The value received for the trade-in asset is then normally used to reduce the lease payments.  This might occur on an annual basis with a small payment made each year or the lease might not require any payments for 2-3 years, depending on the lease terms and value of the trade-in assets.  Since your trade-in asset’s value is reducing the annual lease payments, you might wonder what happens to the trade-in value that was treated as the sales price.  This trade-in value is considered a lease deposit and will be amortized, similar to depreciation, over the lease term.  This lease deposit is not eligible for the fast first year depreciation write-offs (Section 179 or Bonus Depreciation).  This means you pay tax on the trade-in value and then have a deduction over the lease term.

With grain prices down and yields lost due to weather conditions, be cautious of equipment makers, dealers and lenders getting too creative.  Below is an example of the differences in lease structure options.  If you are contemplating a lease transaction and have additional questions, please contact our office.

Here is an example of how lease transactions would be treated if you traded in equipment you currently own outright:

A tractor owned by Farmer Fred, purchased 3 years ago for $150,000, was valued at $250,000 at time of purchase.  Farmer Fred expensed the entire cost in the first year of purchase.  He had been trading the tractor every 3 years.  He decides to lease a new tractor on June 30^th.  The fair market value of the first tractor when he decides to lease the new tractor is $135,000.  Farmer Fred was given a 4 year lease on the tractor and there is no purchase option at the end of the 4 years.  The annual lease payments would be $36,000 per year.  The annual payments for Farmer Fred will begin once Farmer Fred signs the lease agreement.  Since Farmer Fred has a tractor worth less than the 4 annual lease payments, Farmer Fred only has one payment of $9,000.  The $9,000 payment is due in 4 years, meaning Farmer Fred has no deductions until he makes the payment.  In the current year, Farmer Fred reports an ordinary gain of $135,000, since the tractor was fully depreciated.  Farmer Fred will get amortization of the $135,000 lease deposit over 48 months, but the first year he does not get a full year of amortization.  He only gets 6 months of amortization or $16,875 ($135,000/48 months x 6 months).  By doing this lease, Farmer Fred has a reported gain of $135,000 and a deduction of only $16,875.  Farmer Fred has no cash to cover the tax due on the transaction.  If you were to sell the tractor for $135,000 and enter into the lease, the gain remains the same, but now Farmer Fred would have a lease payment of $36,000 and remaining cash of $99,000 to cover the tax on the sale and use the remainder in the farm operation.  Another option for Farmer Fred is to retain the tractor to use towards a purchase transaction, as a tractor is allowed to be traded for other equipment and not just another tractor.  This would remove the gain transaction, keep the lease payment of $36,000 and allow a smaller cash purchase on a future asset purchase.

Most of us automatically think of giving cash when we are asked or led to support a cause.  We want to challenge this traditional way of thinking and explain why giving grain may be a better option.

Let’s start by reviewing who can give grain.  Anyone who has grain can give it! There is a difference though between active producers and those who are crop share landlords.  Active producers will reap greater tax benefits from giving grain than will crop share landlords.

The next question is, “Why should I give grain instead of cash?”  We will simplify this by listing the significant tax benefits for doing so.

Now that you can see the advantages of gifting grain as opposed to giving cash, you need to understand the proper steps for how to gift grain.

*** It is important to note that you will want to have a document in place which spells out the number of bushels you gave away so that if FSA or crop insurance tries to tie out bushels sold with bushels produced, they will know why there is a difference.  The letter referred to above, along with another internal document we have, will satisfy this requirement.

There are three important observations to remember.  First, most of the time, active producers will achieve a greater tax advantage by giving grain rather than cash.  Second, be sure that you fill out the correct paperwork and do the appropriate steps at the elevator to prove that you are giving grain, not just a storage receipt which can be construed as a cash equivalent.  And third, have that same paperwork in place to prove how many bushels you gave away so that if anyone questions production vs. sales, you have a reconciliation of the two. If you decide you want to gift grain and have further questions, please let one of our accountants help you.

Looking for an easy way to find tax savings for you and your employees? How about a Cafeteria Plan?

A cafeteria plan is a separate written plan, maintained by an employer for employees, which meets the specific requirements and regulations of Section 125 of the Internal Revenue Code. It provides participants an opportunity to receive certain benefits on a pre-tax basis.

The primary reasons for implementing a Section 125 plan are the tax savings for both the employer and employee. Employees’ pre-tax contributions are not subject to federal, state, or social security taxes and the employers save on the employer portion of social security, medicare, federal and state unemployment taxes, and possibly workers’ compensation insurance premiums. This increases the employees’ take-home pay and saves the employer payroll tax expense at the same time.

On May 8, 2013, the repeal of Indiana’s inheritance tax was signed into law by Governor Mike Pence. It is backdated to take effect on January 1, 2013. Prior to the repeal, the inheritance tax was being phased out over a ten year period.

In a nutshell, for taxpayers who died after December 31, 2012, no inheritance tax returns have to be prepared or filed and no tax has to be paid. Not only will tax dollars be saved, but also the administrative expense in preparing the return will be saved.

The repeal will help farm families who own valuable land and all others with substantial net worth.  For example, if two siblings inherit a $4 million estate from their father who dies in 2012, the Indiana inheritance tax would be about $235,000. In that same scenario, except the father dies in 2013, there would be no inheritance tax.

The repeal of the Indiana inheritance tax does not affect the federal estate tax. The federal estate tax still exists, but currently the amount exempt from federal taxation is $5.43 million per person.

Do not let the repeal of the inheritance tax keep you from updating your estate plan.

Keep in mind that estate planning is not just for minimizing estate taxes at death; planning is also to insure that your property passes according to your wishes at death.  If you have questions about your estate plan and the current estate tax laws, we encourage you to give us a call.