Cohen CPE Day: A Tale of Taxes, Healthcare & the Economy – November 23, 2015 by Tracy Monroe

This year’s full-day Cohen Client CPE seminar delivered insights on the economy, healthcare planning strategies, The Ohio Society of CPA’s latest initiatives, property tax assessments and, of course, taxes. We also welcomed Congressman Jim Renacci who spoke to our client audience of CFOs and financial staff to provide his thoughts on tax reform.

The range of speakers and topics reflect the range of topics that cross our clients’ desks (and minds) on any given day. Take property taxes; they create the highest liability for individuals yet are one of the most important revenue sources for schools. Kip Danzinger of Sleffs, Danzinger & Gill Co., LPA took us through the process of property tax assessments that occur every three to six years. From analyzing the value of the initial assessment (which is generally 35% of fair market value), to filing a complaint with the county Board of Revision, to the likelihood of the local school board getting involved and the appeals process if necessary.

Another area that we know keeps our clients up at night is the rising cost of healthcare. Tom Farro of Employee Benefits Consulting presented cutting-edge strategies for healthcare planning using specialized third-party consultants. These alternatives take health care options beyond traditional solutions, offering a variety of employers and employees opportunities for greater flexibility and unique alternatives to manage healthcare costs.

Scott Wiley from The Ohio Society of CPAs shared some ways they are elevating and advancing the profession, and improving Ohio’s business climate. In particular, with support of CPAs around the state, OSCPA recently helped pass key legislation, including:

  • Creating a bipartisan process for drawing Ohio Senate and House districts,
  • Prohibiting monopolies in the Ohio constitution,
  • Defeating marijuana legalization, which carried tax and business ramifications, and
  • Passing Ohio’s 2014 municipal income tax reform.

The organization is also working on various programs to encourage kids from grade school through college to learn about financial literacy and consider accounting as a career.

TJ Gliha of Sequoia Financial Group shared that being optimistic may still be the optimal strategy when it comes to our economy, but we still have far to go. We are enjoying a longer but milder business expansion in the U.S. As we wait for more direction from the FED, we are experiencing 2.2% growth, which is good but may not accelerate from here and is lower than the pre-recession growth potential. TJ offered what he considered to be three interesting takeaways from the economy in the last several months:

1.Mediocre growth outlook and a slowing China. China controls 80% of global GDP (Gross Domestic Product), so what happens there could likely have a major impact on future global growth. We also will need to wait and see what the effects will be from China switching from an investment-led economy to consumer-lead.

2. U.S. consumer activity. Offsetting China’s slowdown, the U.S. is benefitting from lower fuel prices; household spending is up 3.2% and U.S. auto sales continue to rise on an annualized basis. These are some nice economic tailwinds for our economy.

3.Premature Fed liftoff. There is a lot of anxiety in the bond market right now. Investors are nervous. The expectation for inflation over the next five to 30 years appears to still be below the Fed’s 2% mandate of where we should be. Money supply is decreasing, credit requirements are tightening and there is speculation on whether the Fed will raise rates in the next few weeks. The impact of all this? Time will tell. But the uncertainty in global markets keeps volatility high.

But the biggest story of the day was, what else, TAXES. Congressman Jim Renacci, as well as Cohen & Company’ Mike Kolk, Hannah Prenglerand me all weighed in on various fronts.

End-of-year planning for individuals and businesses is still somewhat challenging as we wait for the extenders bill to be passed, which is expected to happen by mid-December. For now, taxpayers can likely safely assume certain extenders will pass again, such as:

  • Above-the-line $250 deduction for teachers,
  • Deducting sales tax in lieu of income tax,·
  • Above-the-line deduction for higher-education expenses,
  • Tax-free distributions from IRAs for charitable purposes, and
  • Private Mortgage Insurance (PMI) deductions.

    One of the biggest opportunities for individuals is to make the most of low capital gains rates within the seven-bracket rate structure, timing recognition of capital gains strategically.

    From a business perspective, the repair and maintenance regulations we thought would be a negative for taxpayers have actually resulted in positive outcomes. By asking clients more questions to properly comply with the complex regs, we are finding more opportunities, such as appropriately capitalizing assets.

    The Surface Transportation Act of 2015 will change tax filing deadlines starting with 2016 returns. Partnerships will go from a 3.5-month-extension to 2.5; all C and S Corporation returns will get 3.5 months unless they are a June 30 C Corp.

    Overall, taxing authorities are becoming more and more sophisticated. Know where you are doing business. Do you have international requirements? Are you crossing state lines? Specific to Ohio, it was a big year yielding many taxpayer-friendly initiatives. InvestOhio, a refundable job retention credit for larger employers, and the Ohio historic building credit extension are areas to take advantage of. The Ohio Small Business Deduction increased to 75% of qualifying income. The individual top tax rate is down to 4.99% and small businesses can enjoy a not-to-exceed 3% flat tax rate on their income. Additionally, Ohio USE tax remains a hot button for taxing agencies. If you are a business who has not yet done so, REGISTER for a use tax account, even if you don’t believe you have any liability.

    Municipalities are taking big steps towards tax uniformity with the passage of HB 5 in late 2014. The legislation gives a 21-day threshold for employees to be in a city before withholding is required. Since wages are attributed to only one city, in general, employers don’t have to divvy them up between cities. HB 5 also now requires a 5% across-the-board city interest rates (some now are high, up to 18%). And new nonresident rules say you must be outside of Ohio for 212 days AND meet common tests to be eligible as a nonresident.

    As for tax reform, what can we say? Congressman Renacci’s take, as he said throughout his presentation, is that, “Politics gets in the way of good policy.” Everyone wants reform but no one wants to change what affects them. We have to get past the politics or comprehensive tax reform won’t happen, and we will continue to have one of most complicated systems in the world.

    Our tax professionals are in agreement that with no consensus after six months of Congressional effort and two extensions, reform likely won’t be on the table until after the election. But we believe that with House Speaker Paul Ryan and Chairman of the Committee on Ways and Means Kevin Brady, both committed to reform, the issue will be brought to the forefront sooner rather than later. What could it look like? Simplified! We suspect reform will likely aim to broaden the base and reduce the rate, reducing the number of tax brackets to two, maybe three at most. We could see a larger standard deduction instead of itemizing every little thing, a larger child tax credit, the repeal of the AMT and consolidated/simplified education incentives.

    International tax reform is also a huge issue, and that may come even before general reform. Inversions continue, thanks to lower rates in countries like Ireland – 13% vs 35% in the U.S. The longer we wait the more revenue we lose.

    More to come as we continue to watch reform efforts. If you are interested in attending our next program in June, sign up today.

    We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Tracy Monroe at tmonroe@cohencpa.com or a member of your service team for further discussion.