Louis Plung

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Domestic Production Activities Tax Deduction Nets $500,000 Refund

An Ohio wholesale company with approximately $10 million in annual revenue had invested in a Pennsylvania partnership for approximately ten years. One day, they received a letter from the Pennsylvania Department of Revenue, stating that they owed $150,000 in delinquent taxes. 

They came to us for help, and after investigating the issue, we first helped them pay the taxes due. Then, we discovered they had not been claiming an available tax deduction in Ohio that could have been saving them a significant amount of money annually.

After we amended their Ohio tax returns to reflect the Domestic Production Activities Deduction, they received a $350,000 state refund and an $80,000 federal refund, plus interest. In total, they had received more than $500,000 in tax refunds. 

For more information:  Earl Kaiserman, CPA


Tax Planning Strategies for Trusts

A high-net-worth individual in his late 60s had recently experienced the difficult loss of his wife. Before she passed away, she established a trust that would be funded with $10 million upon her death. The top capital gains tax rate, plus the additional Net Investment Income (NII) surtax, could have resulted in a 23.8 percent tax levied against the trust's income. The surviving spouse, who was also the trustee/fiduciary, asked us to analyze the tax ramifications to find out if there was a better alternative.

We began by understanding his personal situation and his family's needs, and decided the best course of action would be to distribute the trust's income and capital gains to his three adult children. As a result of distribution, the trust avoided the capital gains tax of 20 percent as well as the NII surtax of 3.8 percent.

Then, the trustee's children were named beneficiaries, and because they each had annual income less than $250,000, distributions from the trust were no longer subject to the 3.8 percent NII surtax. Additionally, because each child's personal income was less than the threshold of $450,000, the beneficiaries received a more favorable capital gains tax rate of 15 percent, compared to the maximum 20 percent that would have been levied against the trust.

In this case, the better alternative was to distribute interest, dividends, and capital gains to the decedent's children rather than keeping the income in the trust itself. This strategy has saved the family in excess of $10,000 annually.

For more information: Earl Kaiserman, CPA


New Cost Accounting System Creates Additional Source of Revenue

Following an acquisition, we were called in to analyze the assets and inventory accounting system of a private, family-owned manufacturing company. Because the company did not have a reliable cost accounting system in place, an accurate value of the company was not truly known.

We began by meeting with key employees and observing daily practices to better understand their processes and procedures. We noticed their current system of expensing items before they were actually paid for was causing spikes in income, which can be problematic.

We created rates for overhead and labor, as well as an allocation factor, which would accurately track the entire production process. Then, we identified missing components in inventory control, which became an additional source of revenue when they were properly accounted for.

After the new cost accounting system was in place, the company was able to obtain additional financing and capital. We had also helped to create an additional $200,000 in annual revenue, which was previously lost in the production process.

For more information: Richard Fischer, CPA, CGMA