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Painter and Associates Blog

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2018 Tax Law Changes and Impact on Operating Agreement

 If your LLC has two or more partners and is taxed as a partnership, it is highly advised to consult an attorney to determine whether or not you should amend your LLC’s Operating Agreement in response to changes in the tax law that have gone into effect.

The Bipartisan Budget Act of 2015 (“BBA”) significantly changed the rules governing IRS audits of all business entities taxed as partnerships. The purpose of these changes is, of course, to make it easier for the IRS to audit partnerships with its existing resources.

However, despite these changes, the BBA allows small partnerships to elect to opt-out of the new audit rules and reduce the liklihood of an audit. In order to be eligible to opt-out of these new rules, the partnership must have less than 100 partners and consist only of “eligible partners,” i.e., individuals, estates of deceased partners, S corporations, C corporations, and foreign entities that would be treated as C corporations under existing law. Ineligible partners such as other partnerships, single-member LLCs, estates that are not estates of a deceased partner, trusts, and any other person that holds an interest on behalf of another person will make an entity ineligible to opt-out of new rules; hence consideration must now be given as to whether the “ineligible partners” should become members of an LLC in the first place.

Painter & Associates anticipate that most of our existing LLC clients that are eligible to opt-out will want to do so and, therefore, must amend their Operating Agreement. Also, consideration at this time should be given as to whether Operating Agreements should bar Ineligible Partners from becoming members of their LLCs.

If a partnership that does not opt-out or or otherwise subject to the new rule, is audited and required to pay additional tax for a prior tax year (the “Reviewed Year”), Members may find themselves paying more (or less) than their pro-rata share of the partnership’s tax for the Reviewed Year—especially if Members have left, been added, or had their percentage interests change since the Reviewed Year.

However, under the new law, if the LLC elects to “push-out” the partnership’s tax liability for an Adjusted Year to the Members—including former Members who were Members during the Reviewed Year—the Members will pay their share of the tax based on their respective percentage interests for the Reviewed Year.

LLCs that desire to “push-out” a Member’s tax liability must amend their Operating Agreements to ensure that Members during a Reviewed Year are contractually bound to pay their share of the additional tax, whether or not those Members are current Members or not, or whether their percentage interests have changed in the interim.

Also an audit in prior tax years can cause accounting inequities that are unfair to the current partners; thus, it may be desirable for an LLC taxed as a partnership to amend its Operating Agreement to permit the Manager to take action that can offset or remedy any inequities.

Finally, and perhaps most significantly, the BBA requires that business entities taxed as partnerships appoint a “Partnership Representative” in place of the “Tax Matters Partner.” Under the new law, the Partnership Representative has more authority to take tax positions on behalf of the entity than the Tax Matters Partner did. To address this, LLCs taxed as partnerships should consider amending their Operating Agreements to describe the extent of the Partnership Representative’s authority and to provide direction to the Partnership Representative as to the tax positions he or she should take (e.g., whether to “opt-out” or “push-out” as described above).

If your LLC is taxed as partnership, contact Painter & Associates, LLC to discuss whether or not your Operating Agreement should be updated for your protection.

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Amanda Waltz Named "Rising Star" by Super Lawyers

Amanda Waltz is proud to be selected to the 2019 Ohio Rising Stars list, an honor reserved for those lawyers who exhibit excellence in practice. Each year, Super Lawyers recognizes the top lawyers in Ohio via a patented multiphase selection process involving peer nomination, independent research and peer evaluation. This honor is limited to no more than 2.5% of the attorneys in Ohio. Congratulations, Amanda!

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National Adoption Month in Ohio

November is National Adoption Month and Painter and Associates hopes to increase awareness for the need for permanent homes and families for the children and youth in the foster care system. This year’s theme, “In Their Own Words: Lifting Up Youth Voices,” builds on last year’s theme of the adoption of teenagers in foster care, which is a persistent problem. Learning their stories can lead to empathy and a better understanding of the trials and triumphs of these youth.


It is no wonder that for the second year in a row teenagers are the focus for National Adoption Month, since they are the least likely to be adopted. Because of their age, teenagers are often overlooked, but they need a home just as much as any other child, and YOU can make a difference in their life. In today’s society, everything is fast paced and uncertain. For a teenager this can make life difficult and confusing. Providing a stable and secure environment, where one is able to love and feel loved, can make a world of difference in preparing someone for the challenges in the world today.

This might not be easy because as most parents will tell you, teenagers can be difficult. But this is not a negative, it is a positive. Helping someone who may feel like everyone has given up on them can be one of the most rewarding experiences ever.

The Ohio Adoption Photolisting Website provides a list of events and resources available to youth and prospective adoptive families throughout Ohio.  Additional resources are also available through the Children’s Bureau, a division within the U.S. Department of Health and Human Services

We all feel the fundamental need to love and be loved. To have someone to share our goals and aspirations with and to celebrate those special days. If you are interested in adoption, please consider adoption from the foster system.

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Special Needs Trusts

Special needs trusts are established to provide for our loved ones with disabilities. These trusts are useful because they allow the beneficiary (the person the trust is set up for) to continue to receive benefits they may be collecting from the government.

There are many different types of special needs trusts, each with a unique set of factors and restrictions. While this makes the decision a bit more complex, it also offers some variety so that families can pick the option that works best for them. Below is a table displaying the different issues to consider when choosing the asset. These decisions can seem daunting, but we need to make sure we take care of those who are most important to us, and the experienced attorneys at Painter & Associates are here to help you.

Issues

STABLE Account

Discretionary Supplemental Needs Trust

Supplemental Services Trust

Special Needs Trust

Pooled Trust

Who can create the asset?

Person with disability, legal guardian, conservator, or agent

3rd party

Anyone

Person with disability, parent, grandparent, guardian, or Court

Person with disability, parent, grandparent, guardian, or Court

Who can use the asset?

Only persons disabled before age 26

Any person

Beneficiary qualifying for services through State Department of Disabilities or County Board of Developmental Disabilities or Department of Mental Health and Additional Services

Disabled individual under the age of 65

Any disabled individual

Who can fund the asset?

Anyone

3rd party

3rd Party

Anyone

Anyone

How many can a person have?

One

Unlimited

Unlimited

Unlimited

Unlimited

Who can control the asset?

Person with disability, legal guardian, conservator, or agent

Trustee who is not the person with a disability or their spouse must have complete discretion

Trustee who is not the person with a disability or their spouse

Trustee who is not the person with a disability or their spouse

Nonprofit organization must serve as the Trustee

How much can be paid into the asset per year?

$15,000 per year

Unlimited

Unlimited

Unlimited

Unlimited

Is there a cap on how much can be in the account?

Yes,
SSI Recipients - $100,000 limitation and amounts over are included as resources
Max lifetime limit of $462,000

No

The principal contribution must not exceed $246,000

No

No

What type of distributions can be made?

"Qualified Disability Expenses" which include basic living expenses, housing, transportation, education, assistive technology, employment training, legal fees, health and wellness, and financial management

Distributions for things not covered by Medicaid or SSI (cannot be used for medical care, comfort, maintenance, health, welfare, or general well-being); and at a complete discretion of the Trustee.

Distributions only for services not already received by qualifying programs and are above and beyond the basic necessities. Distributions may be made for travel, vacation, participation in hobbies, sports, exercise equipment, memberships, etc.

Distributions only for things that public benefits do not cover

Distributions for things not covered by Medicaid or SSI

How are funds disbursed upon death of person with disability

- Qualified Disability Expenses
- Funeral and Burial costs
- Medicaid reimbursement for amounts paid after account was opened
- Heirs

Funds may be preserved for another beneficiary and with proper drafting, funds will not have to be turned over to the State

Not less than 50% of the assets must be returned the State of Ohio to be used for the benefits of others who do not have such a trust

State reimbursed for 100% of medical assistance paid on behalf of beneficiary, if available

State reimbursed for 100% of medical assistance paid on behalf of beneficiary, if available

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Celebrities Teach Us About Estate Planning

We have mentioned before that even celebrities fail to have their estate plans organized and updated, even though they arguably have the most to lose. The recent passing of Arethra Franklin saddens us all, and unfortunately she serves as an example of how this failure to plan an estate can lead to serious complications.


Franklin was very successful throughout her career, and this success translated into financial gains and assets, which, according to Rolling Stone, could be valued at $80 million and rising (https://www.rollingstone.com/music/music-news/aretha-franklin-will-what-happens-718930/). Because Franklin passed without a will her estate will be divided amongst her four sons.


Unfortunately, as we have seen before, in the instance of Prince, what actually proceeds is much more complicated. Various friends and family members may come out of the woodwork demanding a part of the estate. Tax collectors and other creditors will come forth for debts owed as well.


The lesson here is that estate planning is essential for everyone, to ensure that your assets are distributed in the most efficient manner according to your wishes. This keeps the decisions out of the court, allows your family to focus on the grieving process, and protects your assets after you are gone.


It is difficult to think about death, but estate planning can provide you and your family with peace of mind, and allow you to enjoy your time together now.


For more in-depth information about estate planning, contact one of our experienced attorneys.


https://www.usatoday.com/story/life/music/2018/08/22/aretha-franklin-estate-fortune/1063513002/

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National Farm Safety and Health Week Carries Important Message

This year National Farm Safety and Health Week is September 16th through the 22nd.  The purpose of this week is to recognize the hard work, diligence, and sacrifices made by farmers and ranchers (http://ocj.com/2018/09/ohio-farm-safety-stats-setting-a-goal-for-zero-fatalities/). 

Every day Ohio's farmers and ranchers put their lives at risk when working with large equipment and various livestock.  In fact, statistics from The Ohio State University Extension Agricultural Safety and Health Program show there have been 128 fatalities of Ohio farmers between 2007 and 2016, and 56% of those fatalities were the result of tractor, equipment, machinery, wagon, and livestock incidents (https://agsafety.osu.edu/statistics).  These statistics do not include farmers that have been temporarily or permanently disabled as a result of a farm related accident.  

Tragedy does not discriminate.  The Ohio State University State Safety Team offers research-based safety education programs, demonstrations, and publications to educate those in the industry about injury prevention and life-saving information.  While education should be the first step to prevention, it should not be the last.

What happens to your operation if you are seriously or fatally injured?  Do you have a succession plan in place?

Contact Painter & Associates to help you navigate the estate planning process and build a succession plan that fits your needs.  

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Qualified Business Income Deduction

One of the most significant additions to the Tax Cuts and Jobs Act (“TCJA”) was the addition of the Deduction for Qualified Business Income.  TCJA substantially lowered the corporate tax rate from 35% to just 21%. Many members of Congress, however, realized businesses run by smaller companies including sole-proprietors, independent contractors and pass-through businesses (such as LLCs and partnerships) should also receive lower taxes.

Thus, Congress implemented the Qualified Business Income Deduction.  Initially, this deduction was limited to “non-personal” service business.  Ostensibly, this made ineligible certain industries such as law, accounting, health, brokerage services, financial services and real estate agents and brokers, to name a few.

To address this issue, Congress at the last minute, allowed these "personal" service businesses to take advantage of the Deduction for Qualified Business Income subject to phase outs at certain income levels. 

Under TCJA, the exception provides that if the business owners’ taxable income is less than $157,500 for single filers and $315,000 for married filers, then the taxpayer is eligible for the full 20% deduction.  Above this level, the deduction is phased out over the next $50,000 in taxable income for single persons and $100,000 for married filers. Even then, a second exception may be available subject to 50% of W2 wages paid by the business or 25% of the W2 wages paid by the business plus 2.5% of the depreciation costs basis of tangible property at end of year.

 

Please contact Painter & Associates to review and set-up your business so that you can take advantage of the TCJA.

 

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The Tax Cuts and Jobs Act- Implications for Homeowners Part III

The Tax Cuts and Jobs Act (“TCJA”) signed into law by President Trump, was the largest overhaul of the U.S. Tax Code since 1986.  These changes impacted almost all aspects of American life including home ownership. Over the last few posts we have detailed what has stayed the same and what has changed. In this post, we specifically look at those changes that may have an impact on those going through a divorce and how to account for changes in child credits, child deductions and spousal support.

   

Child Credit

TCJA increased the child tax credit to $2,000 from $1,000 for children 16 years of age and younger. The income phase out was significantly increased to $500,000 for all filers.

Student Loan Deduction

Retains current law of allowing deductibility of loan debt up to $2,500 subject to phase outs for income.

Spousal Support

TCJA eliminates spousal support deductions for all divorces and separations executed after December 31, 2018.  Also, any changes to pre-2019 agreements after December 31, 2018 can lose its deduction unless the modification agreement specifically states that the TCJA does not apply to the post-2018 modification.

Of course, for pre-2019 spousal support to qualify for an above the line deduction specific requirements must be met such as:

  1. Spousal support contained in written agreement
  2. Payment must be to or on behalf of spouse/ex-spouse
  3. Payment cannot be state to not be Alimony
  4. Ex-spouse cannot live in same house or file jointly
  5. Payment must be made in cash or cash equivalent
  6. Cannot be Child Support
  7. Payer’s return must include Payee’s social security number
  8. No obligations for Payments to Continue after Recipient’s Death

Contact Painter & Associates to help you navigate the TCJA and its implication of your divorce and dissolution

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The Tax Cuts and Jobs Act- Implications for Homeowners and Real Estate Investors Part II

The Tax Cuts and Jobs Act (“TCJA”) signed into law by President Trump, was the largest overhaul of the U.S. Tax Code since 1986.  These changes impacted almost all aspects of American life including home ownership. Over the next few posts we will detail what has stayed the same and what has changed.

Deduction for State and Local Taxes

In one of the more controversial provisions of the TCJA, an itemized deduction of up to $10,000 is allowed for payment of state and local property, income and sales tax.  The limit applies to both married and single filers.  Initially, the bills in both the House and Senate removed this deduction altogether; however, it was re-inserted with caps on the deduction in the final bill.

This provision has potential substantial impact on homeowners in areas with high property taxes. 

Standard Deduction/Personal Exemptions

The standard deduction has been increased to $24,000 for those married and filing jointly and $12,000 for single filers.  This was done in large part to simplify the tax returns.  It also eliminates in many cases the need for itemized deductions except for those persons who can itemize over $12,000/$24,000 respectively.

With this increase, the personal exemptions have been repealed.

Mortgage Credit Certificates

The tax credit remains.

 

Contact Painter & Associates to help you navigate the TCJA.

 

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The Tax Cuts and Jobs Act- Implications for Homeowners and Real Estate Investors

The Tax Cuts and Jobs Act (“TCJA”) signed into law by President Trump, was the largest overhaul of the U.S. Tax Code since 1986. These changes impacted almost all aspects of American life including home ownership. Over the next few posts we will detail what has stayed the same and what has changed.

Exclusion for Sale of Principal Residence and Deduction of Mortgage Interest.

To begin with, the TCJA retains the exclusion of gain on a sale of a principal residence. This allows taxpayers to exclude the first $250,000 ($500,000 if married filing jointly) from the sale of a principal residence so long as eligibility requirements are met.  Both the original House and Senate would have changed this.

Further, the TCJA still allows deductions for mortgage interest, but the final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after December 14, 2017. Also, homeowners that refinance mortgage debt after 12/14/17 up to $1million can still deduct mortgage interest so long as the new loan does not exceed the loan being refinanced.

The TCJA also repeals the allowance for a deduction of interest paid on home equity debt through 12/31/25; however, the deduction is still allowed if the loan proceeds are used to substantially improve the home itself.  In other words, interest on home equity loans to finance the purchase of cars, education, etc. is no longer deductible.

For second homes, interest remains deductible subject to the $1million/$750,000 limits set forth above.

These and other changes to the U.S. Tax Code have significant implications on numerous everyday legal issues our clients encounter, including real estate transactions, probate, estate planning, divorce and business planning.

Our next blog post will address the deduction for State and Local Taxes, Standard Deduction and Personal Exemptions. Contact Painter & Associates to help you navigate the TCJA.

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