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Welcome News for Contractors

By the very nature of the construction industry, contracting businesses constantly move to new job sites, often criss-crossing the state of Ohio. That can get complicated when it comes to tax filing. But, not so much anymore. This video explains in simple terms what's different.

Gilmore Jasion Mahler CPA Mary Jo Pitzen is a member of the firm's Construction Specialist Team. She provides general business consulting and strategic tax planning to many of the firm's contracting clients.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm's professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.

The New Tax Law & Your Construction Business

The Tax Cuts and Jobs Act (TCJA) brought the most significant changes to our country’s tax law in over thirty years when it was signed into law on December 22, 2017. Most of the changes in the new law first applied to 2018 tax returns, so it’s our first chance to really see its impact. Since December of 2017 there have been several notices and regulations clarifying the new tax law, but further guidance is still needed in many areas. In this article, we’ll take a look at some of the key issues impacting businesses, particularly those businesses in the construction industry.

Qualified Business Income (QBI) Deductions Clarified

TCJA introduced a new deduction under IRS Code Section 199A for up to 20% of an eligible taxpayer’s qualified business income (QBI). Final regulations clarifying Section 199A were released in late January. The deduction, which is not available to C corporations, is calculated based on the qualified business income of each trade or business, subject to limitations based on wages and fixed assets. If the individual taxpayer’s taxable income is under $157,500 ($315,000 married filing jointly), the taxpayer is not subject to these limitations.  

Aggregation

The final regulations added the option to aggregate at the entity level, reducing the reporting obligations of the taxpayer. This is welcome news for many contractors, as it is common in the construction industry to have multiple entities for different geographic regions or service lines.

Aggregation can also be done at the individual level, allowing a taxpayer to combine activities that would otherwise be limited from taking the deduction. This individual level of aggregation now allows a taxpayer to combine wages and assets to maximize the QBI deduction. This aggregation will also simplify the new tax return disclosures required under the Tax Cuts and Jobs Act.

Assuming the individual taxpayer’s taxable income is in excess of the thresholds, the 20% deduction is limited based on a percentage of the entity’s wages and/or fixed assets. The final regulations also allow the entity to include wages of common law employees paid by another entity. This could be a significant benefit for related entities that may have differing ownership or those who use staffing companies, certainly something seen often in the construction industry.

Planning Opportunities

It’s also important to carefully analyze other planning opportunities and pitfalls. It will generally be beneficial for partners to take distributions in lieu of guaranteed payments since guaranteed payments don’t qualify for the 20% deduction. Also, entities will need to monitor the level of any consulting or other specified service income within an otherwise qualified trade or business. Specified service income over thresholds could cause an entire trade or business to be disqualified.

Bonus Depreciation and Section 179 Changes

Most owners of construction companies can never have enough equipment! Many of these businesses are smart and buy new equipment for economic reasons and not for tax reasons. If it’s necessary to buy new equipment to grow your company, some changes in bonus depreciation can really pay off. In fact, we’ve seen an increase in activity in the buying and selling of construction companies because this same rule applies to equipment acquired when you buy a new construction business.

The TCJA expanded accelerated depreciation, increased the Section 179 limits, and allows for 100% bonus depreciation on both new and used property. There are not any limits on the amount of bonus depreciation that can be taken, but Section 179 is still limited by the asset acquisitions of the taxpayer as well as taxable income. Qualified Improvement Property, a new class of property, includes nonresidential improvements to the interior of a building. Qualified Improvement Property is eligible for Section 179 depreciation, but currently is not eligible for bonus depreciation due to technical oversights when the TCJA was drafted. 

Meals and Entertainment Deductions: Not What They Used to Be

In the past, taxpayers could deduct 50% of the costs of business-related meals and entertainment expenses. The new tax law has eliminated any deduction for entertainment-related expenses. In general, the 50% deduction remains for most business-related meals, and the 100% deduction for employee social and recreational meals still exists.

Ohio Municipal Income Tax: Easier Filing

Beyond the federal tax law changes, there have also been significant changes to Ohio municipal income taxation. This was the first filing season allowing business taxpayers to file a single, combined municipal income tax return instead of filing separate returns for each city. This is a welcome change for contractors working in communities across Ohio, eliminating the need for potentially dozens or maybe hundreds of separate filings. Before a business can begin filing a combined return, it must first make a one-time election and notify each of the cities within 60 days of the beginning of their tax year. Businesses with a December year end would have had to file the election by March 1, 2019 in order to be able to file a combined 2019 return.  

The application of the new tax law can be complicated for both individuals and businesses. It’s safe to say we can expect to see more clarifications from the IRS in the months ahead. While the Tax Cuts and Jobs Act simplified tax filing for some of the most basic tax returns, many taxpayers and businesses are likely to struggle to digest and apply the new law now and for some time to come.

CPA Mary Jo Pitzen contributed this article. It was also published in the May 2019 edition of the CFMA Northwest Ohio Ledger, the organization's online newsletter. Mary Jo is a senior tax manager at Gilmore Jasion Mahler, LTD. She is a member of the firm’s Construction & Real Estate Specialist Team. Mary Jo is also a member of the Northwest Ohio chapter of the Construction Financial Management Association (CFMA) and the Toledo chapter of The National Association of Women in Construction (NAWIC).

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.  

Business Valuation: What to Look for in an Expert

You know you need a business valuation, but who should do it and how in depth should it be? Gilmore Jasion Mahler Partner Jeff Denning specializes in business valuation and says be aware that the IRS or a court of law will have some requirements when it comes to the valuation, and who does the work. He offers some ideas on how to go about choosing the right person for the job.

Who does a valuation for your business is one of several important questions as you begin to research the process. For more information, see GJM's video blogs How Do You Figure Out the Value of Your Business, Business Valuation: Lengthy Report or Not, and What is the Business Valuation Process. Learn more about Jeff’s expertise in business valuation and forensic accounting, and don’t forget to sign up for GJM’s free quarterly newsletter The Expert with a focus on business valuation and litigation support. Just click here for quick and easy sign up.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting services and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities

Welcome, Joe!

Joe Osentoski Gilmore Jasion MahlerWe’re welcoming a new team member. GJM is happy to welcome Joseph Osentoski (pictured to the left in the Michigan ball cap) to our audit team as a senior associate. Here’s a Q&A with Joe to help you get to know him.

Describe your role at GJM: I will be assisting the firm with financial statement audits within various commercial industries such as construction, manufacturing, and services as well as employee benefit plan audits. I have more than 4 years of financial statement and employee benefit audit experience.

When did you start working at GJM? November 26th.

Why did you choose the accounting industry? I chose public accounting for the challenge and fast-paced environment.

What do you like best about accounting? I liked the opportunities to work with a wide range of clients and businesses.

Are you from the Toledo area originally? If not, where are you from? I lived in Toledo for 10 years, growing up before moving across the border to Temperance, MI. I lived in Rochester, MI while attending Oakland University through undergraduate studies and graduate studies. I moved to Royal Oak, MI upon graduation and I have been living in Toledo for the past two years.

What do you like best about living in Northwest Ohio? Proximity to family.

Do you have any pets, hobbies, family? I’m from a family of 6 (fraternal twin brother and younger sisters), German Shepherd Pitbull mix named Grizz, I enjoy attending sporting events, playing golf, mixing it up with friends and family.

How do you like to spend your free time? Recently, I have been spending most of my free time renovating my home.

What is something people may be surprised to find out about you? I made my first hole in one this past year at the Junior Achievement Chipping in “Fore” Kids Golf Classic outing at my alma mater.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting services and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm's professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.

The CPA Sharpshooter

This week begins my favorite of all our many firm activities, the GJM Pistol Team and our entry in the Winter Pistol League.

Ever since I was 12 and got my first air rifle (similar to the Daisy Red Ryder pictured here) and my Dad started teaching me the basics of marksmanship, I have loved target shooting. Back then, it was usually shooting tin cans off the backyard fence. One time I used a beer bottle instead, but this makes a terrible mess and is not recommended. Eventually I learned a little bit about real target shooting, got a couple of pistols, and now I’m the Equipment Manager and general Sherpa for the firm’s own pistol team.

We’ve been doing this for a while now – this will be the eighth year we’ve fielded a team, and interest and participation in it continue to grow. Team Audit has won the Grand Interdepartmental Championship four times out of the previous seven seasons (including last year), though co-captain Hannah Nowak hails from the Tax group, and has won the individual championship three of the four years she’s participated. Last year 28 different shooters joined us at least once, and by the end of the season we had to turn people away for lack of available roster spots.

This got me to thinking, why I and so many accountants enjoy target shooting, and why some of us are pretty good at it. In shooting and in accounting there is a mindset of being able to break a problem down into its components. For a seemingly simple process (point and squeeze!), target shooting has a lot of little details to it. “Go and shoot bullseyes” is a bit overbroad as coaching goes, but helping a new shooter see that there are separate components of a good shot – sight picture, grip, breath, trigger control, consistency, and finally physical conditioning – is a lot like helping a client understand why operations cash flow isn’t what it could be. The golfers at the firm probably feel the same way about breaking down the parts of their swing – but if you’ve ever seen me golf, all I can say is, sorry you had to see that, and I do better with the shooting at saltines than I do swinging at the little white ball. 

One of the concepts we like to emphasize in client discussions is continuous improvement – there is a gap between where you are and where you want to be, and it’s usually not possible to bridge that gap in a single stride. So what do we do? Instead of stressing because of the distance to travel, we break the process into more manageable pieces, tackle them in succession, and strive to be making continuous improvements that will get us there eventually. I’m nowhere near where I’d like to be as a shooter, but in the past year I’ve worked on my grip – mainly just how hard to squeeze the pistol, and doing it consistently shot after shot. My breathing and trigger control are finally reasonably good, and I’m looking forward to seeing how this season goes now that I’ve (hopefully) improved my grip consistency as well. Continuous improvement!

We all excel in different ways and I appreciate the fact that the firm supports our participation in a sport that’s a little outside the norm for an accounting firm. If we’re honest I probably enjoy the coaching these days more than the shooting itself, harking back to when my Dad taught me the basics of marksmanship when I was 12. So if your son or daughter starts plinking tin cans or crafts a homemade slingshot, just know that it’s harder to shoot out your eye than the movies would have you believe, and that you may have a future accountant on your hands!

Gilmore Jasion Mahler’s Ken Sagesse contributed this blog. Ken is a partner in the Assurance Department who joined Gilmore Jasion Mahler in 2006. A member of the firm’s Construction and Real Estate Specialist Team, Ken’s area of expertise is affordable housing, though he works with many clients across the construction industry. He is a member of the National Leased Housing Association.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.