Our End-of-2018-Newsletter

Below is the abridged version of our End-of-Year Newsletter

Hello All:

Hope 2018 has been good to everyone!

For most of us, it has been a year of changes – on personal as well as professional levels. I am happy to report that our team is intact – without any changes – ready for the 2019 tax season - only better seasoned, versed, and experienced than ever before!

Certainly a year to remember for Arneil – our office manager! In 2018, he got engaged, married, and found out he will be a father to a little girl! Arneil had to travel to Asia a few times this year for that purpose, but for him it was a price well worth paying!

Ruohan hosted his parents here in LA last summer – after not having seen them for several years! Part of what Ruohan did for them was drive them through several western states – showing them the beauty of America-West! I am sure they appreciated their son’s efforts in this regard.

Milton – being the over-accomplisher, couldn’t keep his hands and mind off the books in 2018, despite his recent accomplishments of graduating from CSUN, passing the CFP exam, and teaching for a national tax-preparation chain (immediately prior to joining us). This year saw Milton’s success in the Enrolled Agent arena – as he completed all the requirements and now can call himself an Enrolled Agent. As if that wasn’t enough, he started the Masters in Taxation program at CSUN this fall. Milton is sure to have his hands full for the foreseeable future!

For me, on the other hand, it has not been a year of many changes, as I spent most of my time (including many weekends!) plugging away here at the office! As our long-time clients know, in the years past I traveled extensively – in order to market our US Expatriate expertise. While we are proud of our accomplishments in that arena (having attained clients in Turkey, UAE, Jordan, Iran, Sri Lanka, and Thailand), our promotional efforts overseas are now mostly online and through personal relationships – due to a shift in our corporate strategy – requiring focus on the home-front. Consequently, my only 2018 travels were short trips to San Francisco, Vegas and New Orleans – for a conference in each city, and two weekends in the nearby deserts! (That is right, no vacations for this CPA!)

To be sure, our hard work is paying off! By the end of third quarter 2018, we had already matched the entire growth of 2017 – a trend that is expected to continue.

Otherwise, as many of you suspect, Tax Cuts and Jobs Act (TCJA) will bring sweeping changes to the 2018 taxes – and the seven years that will follow, Internal Revenue Code 199A being the chief culprit! (Of particular interest: Individuals may now deduct up to 20% of their domestic business income!)

There are also significant changes to the Real Estate concerns: For property placed in service after 31 December 2017, separate definitions for qualified leasehold improvement, qualified restaurant, and qualified retail improvement property are now eliminated – all being rolled into a single category called “Qualified Improvement Property”!

Here are some other changes you might find interesting:

The average effective marginal tax rates on wage and salary income (29.1% in 2017 for all taxpayers) will generally decrease (expected to drop to 26.7% for 2018).

The new qualified business income deduction will be claimed on 17.4 million returns in 2018, totaling $40.2 billion in deductions. (The Senate Finance Committee estimates)

Only about 18 million returns in 2018 will claim itemized deductions (from 46.5 million in 2017) – thanks to the nearly doubled standard deduction, and the reduction or elimination of some itemized deductions in 2018.

Planning for the section 199A deduction can be further broken down into two categories of personal side and business side…

At the risk of sounding too technical, this brief glimpse into the new tax reality was provided – just to give you a taste of what is to come. There is obviously a lot more that we will discuss in the coming days, weeks, and months.

Other interesting tax topics that I have worked with this year, and therefore have done research on, find interesting, and worth mentioning (briefly) include:

Depreciation Recapture – is the reportable gain when you sell depreciable property. It comes in play when the adjusted cost basis of the sold asset is less than what you sell the asset for.

R&D Credit – of particular interest to manufacturers and IT folks – this credit (not expense deduction – but a credit!) incentivizes some research work by lessening a company’s liabilities for spending money on that research. It equals a percentage of Qualified Research Expense (QRE) of an entity.

Cost Segregation – A tax planning tool, allows entities and persons that have purchased, built, remodeled, or expanded any kind of real estate to boost their cash flow by accelerating depreciation deductions – deferring federal and state income taxes.

Cannabis Related Businesses – The Secretary of State is the first stop for establishing a cannabis-related business. Then, there is a series of processes you need to go through for permit, licensing, and taxation - including satisfying the requirements of California’s three cannabis licensing authorities.

Opportunity Zones – Last but certainly not least, this exciting new federal program has invoked lots of curiosity/interest. It creates a tax incentive to reinvest – for investors who have unrealized capital gains – into Opportunity Zones designated by each American state and territory.

We live in very fluid times: a lot is changing. The key to getting the most out of your tax situation for 2018 – especially considering TCJA – is proper tax planning. Keep abreast by help from your financial and legal professionals.

Speaking of planning, we all need wealth management: whether it be making sure we are properly covered to have that dream retirement, our children are securely covered to get a higher education, we have proper disability/life insurance - or investment in annuities, our financial (not necessarily retirement) investments are properly managed, and finally – if our legacy will be carried out the way we want it to, if something should happen to us.

Wealth management has been the fastest growing segment of our practice. It is exciting to map one’s financial future. Among other things, it makes one feel in better control of their life and destiny! Feel free to set up a free consultation with us – just to find out what this is about!

Related to the foregoing, in 2019 expect increased volatility in the stock and bond markets – and be prepared to shield against it. Financial markets are fundamentally strong, but there is uncertainty – and not necessarily regarding financial issues. In the words of one of our financial wholesalers, 2019 will be a year of “divergence, diversification, and distortion”.

As they say, knowledge is power. Knowing the facts, teamed with proper planning can increase your cash flows and minimize taxable income (bringing your “Tax Freedom Day” closer to the beginning of the year!) – practically making it possible to catch big fish from muddy waters.

Then there is the valuation/forensic side of our practice. In 2018, we saw an unexpected surge in demand for these services, including from our licensing/overseeing agency: NACVA who asked me to moderate discussions, interview experts, and present my own topics via in-person presentations and webcasts. Otherwise, we saw an increase in clients asking for forensic (detective) work on certain financial relations, and for business valuations relating to purchase/sale - or for entirely other purposes.

Aside from the NACVA, the list of others for whom I professionally presented in 2018 included Terrapinn’s California Accounting & Finance show, Southland Regional Association of Realtors, and CALCPA’s Estate Planning Committee. California’s Education Foundation also approached me for teaching a course to other CPAs, but I decided to put that idea on hold, not wanting to get distracted from our defined goals for the year.

The City of Los Angeles also graced us this fall - for the second year in a row - by inviting us to be part of a series of entrepreneurial workshops designed for small businesses. Our gratitude goes out to the City and Mayor Eric Garcetti in this regard.

Otherwise, the team and I kept busy with preparing mortgage-related P&Ls and CPA Letters, incorporating our clients’ businesses, representing our clients in IRS/FTB audits, and plain old-fashioned bookkeeping and payroll for our clients.

Then, there is the ever-increasing role of the social media! On a regular basis this year (almost daily) I searched for, found, and posted practical/useful articles we felt would benefit our clients and friends. For those who are still not linked with us, please friend/follow us on Facebook, Twitter, LinkedIn, or Google+ (search for Ed Mofrad or Mofrad Financial Solutions). Time-permitting, I plan to write my own articles/post educational videos, but this remains to be seen.

Additionally, we are reformatting our Engagement Documents. Whether if you come in, or send your documents to us remotely, we’ll ask you to read/sign the documents we need before we can commence work. We are doing our utmost to make the documents easy to understand and transparent. All the same, we encourage you to reach out to us should you have questions.

Also, look out for our holiday greetings, and then organizers, engagement documents, and… Oh, yes, for our creative goodies this tax season!

Finally, remember that we have an open-door policy; you can always come in (with advance notice – An unannounced drop-in may not find me – or the associate you want to see in the office at that time). In fact, we do ask any new clients or prospects within a driving distance to come in for a “Meet & Greet” session, or if you want to make an appointment to see what wealth management is all about (both at no-cost). All-else being equal, however, the past has shown a much smoother/more efficient process if you work with us remotely (to save you driving, parking, and time spent at our office).

Otherwise, please accept the best wishes for a safe and happy holiday season, and a healthy and prosperous 2019 from Arneil, Ruohan, Milton, and myself!

Honored to be of service!

Ed Mofrad, CPA CVA MBA

Mofrad Financial Solutions