Ohio CPE Day Wrap: Running an Efficient Business, the State of Taxes, Northeast Ohio’s Rise and More– November 21, 2017 by Tracy Monroe

We were so happy once again to provide our CFO and controller clients and friends with a full day of practical and insightful information during our annual Ohio CPE event this past week. Our speakers offered an in-depth look at the economy, how to efficiently run a business, the latest in the A&A world, and northeast Ohio’s historic year in 2016 and the plan to keep the momentum moving forward. Our tax portion of the day came with its own full agenda, including information on IRS audits, state and local tax concerns, tax reform and year-end planning. Below is just a glance at what was covered.
 
We started the day with an economic outlook from Russell Moenich of Sequoia Financial Group. Our current place in the business cycle remains steady; we are still amidst the late innings of a very long yet mild expansion cycle. Russell suggested that the current environment indicates we could remain recession-free for another couple of years driven by solid global economic growth. He also went into detail about the very real effect of Trumponomics, or the shift in ideology towards pro-economic growth/pro-business and away from big government. Trumponomics is having a positive effect on our economy. Even before, or if, meaningful tax reform is passed, the fact that business owners feel their regulatory burden and taxes will not, at the very least, go up instills confidence in their day-to-day decision making. Time will tell how long this will last, as Congress ultimately holds the cards to move things forward on any regulatory front. Our biggest current risks to the business cycle? The threat of the FED raising short-term interest too fast, too much or both.
 
Ron Kaminski of CultureShoc discussed the benefits of applying EOS in entrepreneurial organizations to more efficiently run a business, stating that EOS will help a company do three primary things:  get aligned around the vision, gain traction with the vision (discipline, execution and accountability) and remain healthy (starting with leadership). The goal is to get clear on your business and how to run it, own it and ensure others own it.
 
Ron focused his presentation on the six areas in which entrepreneurial organizations must be strong to be successful and attract great talent:  1) have a clear vision and make sure it is shared by all, including core values, focus and long- and short-term plans; 2 ) engage people, including being honest in your talent strengths and weaknesses and having the right people in the right seats; 3) have a data-driven organization so you can make good decisions, including a structured approach to reviewing metrics; 4) have a systematic way to attack issues and “face your storms”; 5) Document core processes and determine how to get everyone to follow them; 6 ) Gain traction, including focusing on discreet objectives for a defined amount of time and holding regular meetings to keep a pulse on the business. Ron’s message to the audience was that following these guidelines and creating a structure around your business based on simple, practical tools will help lead your company to success.
 
Brett Fogle of Cohen & Company discussed the IRS audit process and what taxpayers need to know. Overall, there is a process in place, including being contacted via letter — never by phone or email — and may or may not include a face-to-face meeting with an agent. However, Brett stressed that it’s helpful to sign a Form 2848 to give power of attorney so your accountant can speak with the IRS on your behalf. Some of the information they will be looking for are payroll documents, trial balances, general ledger expense reports and officer compensation reports. Brett discussed certain types of activity that may send a red flag to the IRS, such as small business owners with Schedule C income greater than $100,000; filers without automatic withholdings; hobby losses; returns with itemized deductions over 40% of adjusted gross income; income from certain trades that primarily collect income in cash; and significant charitable donations relative to income.
 
Some of the best practices he recommended include keeping documentation for at least three years for everything from expense reports to minutes of stockholder meetings to declaration of dividends. He also recommended understanding your returns when you sign them (before an issue arises); and knowing the latest audit trends, such as the new partnership IRS audit rules starting in 2018. If you are selected for an audit, bring in your advisors early to help manage requests and any proposed adjustments, be prepared and respond to questions quickly.
 
Hannah Prengler of Cohen & Company gave a state and local tax update, starting with the aggressive push by many states to collect sales/use tax from out-of-state businesses. While nexus laws are often inconsistent between states, a 1992 U.S. Supreme Court ruling in Quill Corp. v. North Dakota tried to even the playing field, requiring at least some physical presence of a company before a sales tax collection obligation can be imposed. But states are finding ways around it. Some are attacking the decision, passing their own regulations to challenge the ruling and force payments by taxpayers; while others are making indirect attacks, ramping up burdensome business sales/use tax reporting requirements to bury companies in paperwork or face steep penalties. Read more about other efforts by states to collect in “The Latest Efforts by State to Tax Your Business.” 

By way of Ohio updates, the state is challenging some professional employer organizations’ (PEOs) right to claim the Ohio small business deduction. Learn more in “Ohio Department of Taxation Suspends Assessments of Investors Using PEOs and Claiming the Small Business Deduction.” A tax amnesty program opens up January 1, 2018, through February 15, 2018, and includes most taxes due and payable as of May 1, 2017. The program offers no penalty, and interest is reduced to 50%. And, finally, Ohio’s latest budget created an option for Ohio corporations and pass-through entities to centralize all of their municipal business tax filings through the Ohio Department of Taxation beginning with the 2018 tax year. Registration is open. Learn more in “Registration Open for Ohio’s New Centralized Municipal Business Filing System.”

Deb Janik of the Greater Cleveland Partnership recapped Cleveland’s exceptional year in 2016 and discussed what the region is doing to capitalize on our momentum as the “city on the rise.” Of course it all started with the trifecta of “wins” brought forth by hosting the Republican National Convention and the phenomenal seasons of the Cleveland Cavaliers and Cleveland Indians. Deb pointed out that the best outcome from the city’s success in 2016 was the change in how others perceive Cleveland and the region. More than 3,000 national and international media stories helped shape the city’s comeback, earning Cleveland a spot in the top five visited destinations in the U.S. This enhanced image is helping the region attract new business and talent. Millennials are reviving northeast Ohio, and diverse investments are happening across industries (think Amazon and Progressive). The region continues to invest in housing and residential areas, entertainment and lodging, and infrastructure and public spaces.
 
Despite all of our recent success, Deb stressed that there is still a lot of work to be done, including continuing to partner with business leaders. Northeast Ohio workforce providers and employers are collaborating on processes and plans to address workforce needs at every level, including an eight-county regional workforce plan, higher education initiatives, and a Greater Cleveland Partnership strategic plan focused on talent and workforce engagement. Critical next steps for the region? Maintain an aggressive, creative approach to capital investment; capitalize on the region’s proximity to four major metros for business expansion and attraction; maximize access to young talent and graduates; and continue the ongoing investment in urban centers, neighborhoods, public transit and alternative transportation, and K-12 education.
 
Matt Cunningham of Cohen & Company gave an update on accounting standards and FASB activity. With the FASB working on numerous initiatives to ultimately improve reporting, unintended consequences of those new standards continue to arise and keep the FASB’s agenda full with new issues to address. Matt highlighted nuances regarding each of the 10 standards going into effect in 2017 for calendar-year nonpublic companies, including ASUs related to simplifying the measurement of inventory; business combinations; fair value measurement; and consolidation. 

Matt also discussed significant standards related to leasing and revenue recognition. The new leasing standard revises the proper treatment of leases and will affect companies that lease real estate, vehicles, construction and manufacturing equipment, and other assets. The standard requires these businesses to recognize most leases on their balance sheets, potentially inflating their reported assets and liabilities. He pointed out one of the most important issues to consider is how banks will respond and how the standard might affect covenants. He cautioned to consider how entering into new leases will affect you down the road. Find more detail in “New Accounting Standard Changes Lease Reporting on Financial Statements.” Regarding revenue recognition from contracts with customers, the standard will affect any organization issuing financial statements according to GAAP and will affect procedures within your internal accounting department. Matt recommended the need to look closely at contracts and what you are promising to deliver. Find more detail in “New Revenue Recognition Standard for Contracts with Customers: Why It Matters Now.”

And I wrapped up the day with an update on federal tax planning, speaking to both businesses and individuals. There’s, of course, a lot to talk about. The recent release of the House and Senate tax reform proposals gave way to interesting comparisons. While there are many similarities, there are still substantial differences. From fewer tax brackets and itemized deductions to larger standard deductions, tax code simplification is still a primary driver. Both proposals opt for a 20% flat tax for C Corporations, aiming to make U.S. companies more competitive globally. There is an endless level of detail to explore. Read a snapshot of the proposals in Tax Reform Watch:  A Deeper Look at the House and Senate Tax Bills.
 
As for 2017 year-end planning, we look to the early indications from both bills, including effective dates of reform beginning in 2018 or later, and the certainty given to us by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). As all proposals to date call for reduced tax rates in the near future, our general planning advice for 2017 is to defer income and accelerate deductions. Specifically, look for opportunities to pay state taxes, miscellaneous itemized deductions or medical expenses before year-end since those deductions could possibly be eliminated January 1, 2018; consider fixed-asset additions for businesses before year-end that may qualify for 50% bonus depreciation or increased Section 179 expensing; minimize net investment income and, therefore, the net investment income tax; and reduce modified adjusted gross income by maximizing retirement plan contributions. 
 
As always, thank you to all of our speakers and clients for their participation in our CPE event. If you would like more information regarding any of these topics, please reach out to the speakers directly or contact us at coheninfo@cohencpa.com to request a copy of the presentation materials.
 
To stay up on the latest on tax reform, sign up for our Tax Reform Watch Series.
 
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.