Currently, the federal estate tax laws continue to provide for your ability to leave an unlimited amount to your spouse or a charity. The estate tax exemption for transfers at death to individuals other than a spouse or charity is currently set at $5,490,000. In addition, if you are a surviving spouse, you may elect to use your deceased spouse’s remaining estate tax exemption in addition to your own estate tax exemption. Thus, with appropriate planning, a married couple can exempt the first $10,980,000 of assets left to their family from estate taxes. Any property in excess of the applicable exemption is subject to an estate tax rate of forty percent (40%).

On January 24, 2017, Senate Bill – S. 205 and House Bill – H.R. 631 were introduced, which would eliminate the federal estate tax and generation skipping transfer tax for estates of decedents dying on or after the date of enactment of the Death Tax Repeal Act of 2017. These Bills would also modify but not eliminate the existing gift tax. The gift tax will be retained with the present exemption and annual exclusion, with continued indexing. The gift tax top rate will be reduced to 35%, with respect to taxable transfers after $500,000. The anti-estate freezing rules of Chapter 14 will be retained, presumably because they are needed to protect the integrity of the gift tax. The present basis adjustment on the date of a decedent’s death will be continued, even in the absence of an estate tax. It is difficult to predict if this bill will become law.

With potential changes in the estate and gift tax law, it will be important that those who currently have a taxable estate be proactive in their estate planning, so that if changes occur, immediate action can be taken.

In the event of a repeal, those who have taxable estates should understand the impact on his or her estate and what changes should be considered in the existing estate planning documents.

• Wills and Trusts which contain formula clauses should be reviewed to make sure the provisions meet their objectives and options in the event of repeal.

• The estate plan should be sufficiently flexible to accommodate foreseeable future changes in law.

• Taxable gifts should be delayed until there is a better understanding of the proposed changes and the timing of those changes.

• Income tax and capital gain planning will likely become more important if the estate tax is repealed.

• It will still be necessary to consider estate tax planning in states (such as New York, Connecticut and Massachusetts) which continue to have an estate tax.

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In This Issue

Risk Management

Getting “Credit” For Hiring Veterans

Estate Tax Repeal Proposal…What Does It

Mean for You?

25 Braintree Hill Office Park Suite 102Braintree, MA 02184

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PAID Permit No. 54394

Braintree, MA

Spring 2017 – Volume 27

Estate Tax Repeal Proposal…What Does It Mean for You?

By Rita Leung, CPA

A common buzz term in corporate America is “Risk Management.” The concept of risk management was born out of the combination of excessive use of leverage, weak internal controls, fancy financial instruments and living in an era of instant gratification. Entire finance departments, educational curriculums and think tanks are dedicated this concept...but how does it apply to Auto Dealers?

Let’s find out.

Structure and Systems Behind something that is done very well is a great “system.” Think Disneyworld, The Four Seasons Hotel and Starbucks. They insist on having competent, well-trained people, but the key to their success is uniform processes and procedures. If it is important, put it in writing, train everyone involved, inspect against the guidelines and be sure to follow-up on all exceptions. The goal of all systems is to be process not people dependent.

Financial Reporting A common issue that has many negative consequences is “messy” books. Monthly control and validation of all balance sheet accounts is a critical function to the proper operation of a dealership and to accurate reporting of profits. This sounds basic, yet time and again, this is lacking and there are negative adjustments needed to get accounts in balance. There needs to be a clear line of responsibility for each account from the perspective of both the office personnel and the department manager. The account schedules should be reviewed monthly by the office and problems should be reviewed with the department heads. A plan to resolve any aged or incorrect balances should be determined and equally important is ensuring that the processes in place are adjusted to avoid reoccurring problems. The risk is that your profits are overstated, your bonuses and commissions are not accurate and you make business decisions using the wrong information...not where you want to be!

Cash Controls The old risks are as scary as the new risks.

Strong cash controls are always important. You should be sure that cash accounts are reconciled daily via online banking. One person reconciles and another periodically reviews. Additionally, the process for handling and accounting for cash receipts (cash, checks and incoming wires) should be reviewed to ensure that duties are properly segregated.

Cash disbursements can be efficiently reviewed through the cash disbursements journal. The back-up for any checks or outgoing wires that you aren’t familiar with should be analyzed.

Debt It is only the very savvy who can overuse debt to their advantage. The rest of us are better off with adequate capital in each investment we make. The term “skin in the game” exists for a reason. Today, it is tempting to load up on cheap debt. Yet, there are caution signs all around. With interest rates slowly rising and asset prices (again) at near highs, it is time to map out a path to pay down existing debt and the proper criteria for taking on new term loans and mortgages.

When you aggressively pay down debt, you know where your cash is going. Do you know exactly how excess funds will be used when they are left in your checkbook?

Bottom line…it is hard to go wrong paying off debt. Ben Franklin said, “Creditors have better memories than Debtors.”

Aftersell Department Ever shrinking margins from new and used vehicle sales have led to an emphasis and reliance upon aftersell revenue. A review of your sales practices, compliance and rate of product cancellation should be performed periodically to avoid surprises. Consider a standard monthly reserve to account for potential customer refunds and third party chargebacks. Also, review the assumptions utilized in building reserves for any self-insured products. Finally, what controls are in place and who checks to see that charges taken against reserve accounts are appropriate?

Cyber Security Would you be shocked if you had some sort of security breach in the next few years…unfortunately, probably not. However, you would be upset if the issues could have been avoided. Not having a basic data and cyber security assessment performed by an independent I.T. professional is a risk that can be managed. It won’t prevent all possible problems but it will likely reveal a few key “holes” in your I.T. security that can be quickly and inexpensively closed. We can assist with this one.

Mark V. Dow, CPA, MST is a Principal at O’Connor & Drew. He can be reached at mdow@ocd.com.

DealerDetailsRisk Management

By Mark V. Dow, CPA, MST

By Mark V. Dow, CPA, MST

A few months ago a dealership owner called me regarding an employee he had just hired. The employee, a previously unemployed veteran, had just come into his office and mentioned that the dealership qualified for a tax credit for hiring him. After looking into the matter, I was happy to inform the owner that this employee may earn the dealership a tax credit of up to $5,600. Needless to say, this new employee was off to a great start in the eyes of the owner.

By hiring this veteran, the dealership qualified for the Work Opportunity Tax Credit (the “WOTC”). This is a federal tax credit that employers may receive for hiring individuals from certain recognized groups who have consistently faced significant barriers to employment. In December of 2015, President Obama signed the Protecting Americans from Tax Hikes Act (the “Act”) which extended this credit until 2019. Under the provisions of this Act, unemployed veterans represent one of the recognized groups qualifying for the WOTC. While this article focuses on the hiring of veterans, other groups qualifying for this credit include those receiving SNAP benefits (food stamps), Supplemental Security Income recipients, long-term unemployed individuals and ex-felons.

When a qualifying veteran is hired, the WOTC is based on a percentage of qualified wages paid to the veteran during the first year of employment. Subject to the maximum amounts (see chart), an employer can earn a tax credit of up to 25% of an employee’s wages if they work at least 120 hours and 40% of the employee’s wages if they work at least 400 hours. The maximum credit for hiring qualifying veterans ranges from $2,400 for veterans who have been unemployed for four weeks or receive SNAP benefits to $9,600 for veterans who have a service connected disability and who have been unemployed over six months.

There is no limit to the number of eligible employees for which an employer can receive a tax credit for. Therefore, if an employer has several qualifying employees, this credit may be very beneficial to their tax situation.

While the WOTC is a Federal tax credit, it is administered at the state level. In order to earn the credit, the employee must be certified by a state agency. Here in Massachusetts that agency is the Department of Career Services. To begin the process, all newly hired employees should fill out IRS Form 8850 – Pre Screening Notice and Certification Request for the WOTC. This form asks the new employee questions to determine if their situation may result in a potential WOTC tax

(Source: Department of Labor) credit for the employer. If any questions are answered yes, then the employee meets the criteria.

After identifying the qualifying employee, the next step is to receive a certification from the State of Massachusetts. This is done by completing the Department of Labor’s Form 9061. This questionnaire asks some additional questions corroborating that the employee qualifies as one of the certain groups that the WOTC is meant to assist. In the case of veterans, applicants will need to provide a copy of their driver’s license, discharge papers and documentation supporting a service-connected disability, if applicable. The IRS Form 8850 and Department of Labor Form 9061 will then be mailed to the state Department of Career Services. Both forms must be postmarked no later than 28 days after the employee begins employment.

While involving a state agency in this process can sound like more trouble than its worth, we have found most of our dealers who submitted their completed documentation have received a certification from the state in a timely fashion. Once certified, the tax credit will be taken on the dealership’s corporate tax return. If the dealership is a Subchapter “S” Corporation then the tax credit will flow to the individual owner’s personal tax return.

For dealers who have expanded or have increased their employee head counts and have hired veterans, taking advantage of the WOTC is a beneficial way to decrease your tax liability. The best course of action dealerships should take is to identify qualifying employees when hired and to prepare the appropriate paperwork to be filed timely with the state Department of Career Services.

If you have any questions about the WOTC, please feel free to contact Todd E. Merriam, CPA at O’Connor & Drew, PC at (617) 471-1120 or tmerriam@ocd.com.

DealerDetailsGetting “Credit” For Hiring Veterans

By Todd E. Merriam, CPA

Veteran Target Group Maximum Tax Credit

Receives SNAP (food stamps) benefits $2,400

Entitled to compensation for service-connected diasability

Hired one year from leaving service $4,800

Unemployed at least 6 months $9,600

Unemployed

At least 4 weeks $2,400

At least 6 months $5,600