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Monthly Archives: June 2014

Why Your Insurance Policies Need Regular Check-Ups by Scott Montgomery

Posted on June 30, 2014 by Richard Berkowitz, JD, CPA

Just as annual medical check-ups help individuals maintain proper health, insurance plan reviews can provide invaluable benefits. By evaluating current insurance policies once a year or every two years, individuals can ensure that their policies keep up with their changing circumstances and may even result in re-rated and reduced premiums.

Too often, individuals purchase insurance policies, begin paying premiums and never think about those policies again. However, like life, insurance is dynamic. Major life events, such as marriage, divorce, births of children and employment status, can affect individuals’ insurance needs and the intended uses of policy benefits. The reasons for purchasing a policy today may not apply in the future, and benefits planned today may not be sufficient to meet one’s needs or the needs of his or her beneficiaries 10 years from now.

Permanent insurance

Permanent cash-value life insurance policies build cash value and subsequent death benefits during a policyholder’s lifetime. With a whole life policy, the premiums are guaranteed for the entirety of the policyholder’s life. Conversely, premiums associated with a non-guaranteed universal life policy can vary during the insured’s lifetime depending on the insurance company’s credited interest rate, mortality cost and company administrative expenses. As a result, an individual who purchased a universal life policy in the 1990’s, when interest rates were near 9 percent, is likely to see an increase in their premium payments during their lifetime. Similarly, premiums for universal life policies have the potential to decline over the course of one’s lifetime, as they may for individuals who purchased policies during the recent near-record interest rate lows. This, of course, assumes that interest rates will return to their historical average in the future.

With these facts in mind, individuals should continuously monitor their permanent life insurance policies to ensure that the premiums they pay will provide the death benefit for which they initially planned. Policy changes or other investment vehicles may need to be considered to meet the insured’s needs and/or supplement death benefits.

Meet Evolving Business Needs

Another situation in which policyholders benefit from regular reviews occurs when business owners rely on insurance policies as part of buy-sell agreements. In these succession plans, the business’s shareholders take out life insurance policies that enable them to use the proceeds upon the death of one shareholder to fund a buyout of the deceased ownership interests. Hopefully, businesses will grow long after succession plans are put into place. At that point, the features and benefits of the original policies may no longer apply in the future, and alternative funding vehicles may be considered, or the policies may need to be altered to meet new funding needs.

Reduce Rates

One of the most overlooked aspects of regular insurance check-ups is policyholders’ ability to potentially reduce their premium payments. Mortality costs and interest rates change, as do the offerings of insurance companies who try to stay competitive in a constantly evolving market. As a result, individuals may qualify for policy re-rates or, depending upon their health, they may be able to move into new policies with lower premiums. For example, a smoker or an individual with high blood pressure or another chronic health issue may secure an insurance policy and end up paying significantly high premiums. If the insured takes the steps to improve these health issues and sustain them over time, the insurance company may agree to a lower policy rate.

Policyholders also may be able to change their rates when their circumstances change. For example, individuals may take out a policy initially to ensure their survivors have ample money to remain in their homes and pay off the mortgage or to provide for a beneficiary to cover the costs associated with paying for a college education in the future. However, should they reach a point in their lifetimes that they no longer need these protective provisions, the policyholders may be able to reduce the benefit amounts and thereby reduce their premium payments.

Insurance is an asset that, like most investments, requires regular monitoring. Reviews of policies should not be limited to one’s life insurance. All insurance products, including disability and long-term care, can benefit from regular check-ups to ensure that policies adapt to changing needs and their rates remain competitive within the market and in line with policyholders evolving circumstances.

About the Author: Scott Montgomery, CLU, ChFC, is a registered representative with Raymond James Financial Services and a director with Provenance Wealth Advisors, an independent financial services firm affiliated with Berkowitz Pollack Brant Advisors and Accountants. For more information, call 305-379-8888 or email

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Securities offered through Raymond James Financial Services, Inc., Members FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants.

Any opinions are those of Scott Montgomery and not necessarily those of RJFS or Raymond James. Insurance policies have exclusions and limitatio9ns. The cost and availability of insurance depends on factors such as age, health, and the type of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of insurance. Any guarantees are based on the claims paying ability of the insurance company.

Real Estate Owners Can Achieve More Favorable Tax Treatment when Answering the Question: Am I a Dealer or an Investor? by John G. Ebenger

Posted on June 26, 2014 by John Ebenger

It is a little-known fact that real estate developers can reap more favorable tax treatment of property sales depending on how they classify and distinguish these activities. Typically, developers/dealers treat profits and losses from the sale of real property as ordinary income. Depending on the taxpayer’s income and filing status, ordinary income may be taxed at the 39.6 percent rate (or higher, based on the loss of certain deductions and the new “Net Investment Income Tax” rules.) However, under certain circumstances, real estate owners may take advantage of the preferential 20 percent capital gains rates when they sell property they held for investment.

How do real estate owners, and possibly developers, make the distinction between property sales to qualify for favorable tax treatment? The answer can be found in the real estate owners’ and developers’ intents to acquire, hold and sell the property; their conduct; as well as the frequency and substantiality of their property sales. Specifically, property owners and developers must prove they are investors, rather than real estate dealers.

Dealer or Investor?

A real estate dealer is a person who purchases real estate and sells it to customers “in the ordinary course of his or her trade or business.” Because these sales occur as a part of a dealer’s “ordinary course of business,” the dealer records the sale as a gain or loss of ordinary income.

In contrast, a real estate investor purchases and holds property over time, typically more than one year, in order to realize appreciation in value. Because investment property is considered a capital asset, proceeds from the disposition of the property is subject to capital gains tax.

To determine whether property sales are conducted by dealers or investors, the courts consider the following questions of fact:

1. Was the taxpayer engaged in a trade or business? If so, what business?

2. Was the taxpayer holding the property primarily for sale in that business ?

3. Were the sales contemplated by the taxpayer “ordinary” in the normal course of that business?

When responses to these questions are affirmative, the courts categorize the developer as a dealer, for whom profits and losses from sales of the property are subject to ordinary income.

Despite this distinction between dealer and investor status, there are times what a real estate dealer may also act as an investor. Subsequently he or she may benefit from capital gains treatment on specific property sales, depending upon the relationship between the nature of a dealer’s business (i.e. a residential development or dealer in unimproved real property) and the nature of the specific property for sale (i.e. improved or unimproved, commercial or residential.) For example, when a residential developer sells unimproved real property to a commercial buyer, he or she may be eligible for capital gains treatment because the nature of the developer’s business (residential development) is unrelated to the nature of the property sold (commercial.) In these instances, it is important for developers to hold sale properties separate and apart from investment properties.

Property Held for Sale or Investment?

The conduct of the real estate developer and his or her efforts to sell a property play a significant role in determining his or her status as dealer or investor. Developers who seek capital gains treatment of property sales must rely on case law and the following eight factors that the tax courts have historically considered when deciding tax status:

• The nature and purpose of the developer’s acquisition of and duration of ownership in the property;

• The nature and extent of any improvements the developer made to the property;

• The nature and extent of the developer’s efforts to sell the property;

• The extent of the taxpayer’s efforts to develop, subdivide and advertise the property in order to solicit buyers and increase sales;

• The character and degree of supervision the developer exercised over any representatives selling the property;

• The use of a business office in the sale of the property;

• The number, extent, continuity and substantiality of the developer’s property sales; and

• The time and effort that the developer devoted to the sale

Not one of these factors is more important than the others. Rather, the courts look at a combination of developer’s actions and his or her intentions when determine his or her role in property sales and the resulting tax consequences. Because intents can change over time, developers must maintain detailed documentation proving when and why they deviated from their original objective to hold and sell the property and realize the resulting tax benefits.

The classification of a real estate developer’s status as a dealer or investment is not a black and white determination. Rather, developers must consider the various nuances to the tax laws and weigh the obvious and hidden risks and rewards of each designation before taking any actions.


The Real Estate Tax professionals with Berkowitz Pollack Brant have extensive experience helping domestic and international developers, property owners and construction firms to develop and implement advantageous tax, compliance and transaction strategies.

About the Author: John G. Ebenger, CPA, is a director in the Real Estate and Tax Services practice at Berkowitz Pollack Brant. For more information, call (561) 361-1010 or e-mail


Virtual Estate Planning in the Digital Age by Barry M. Brant

Posted on June 20, 2014 by Barry Brant

It is difficult enough for most individuals to remember all of the usernames and passwords they establish for email, social media, and online shopping, banking and investing. Imagine what happens to those digital assets and online identities when an individual dies or becomes incapacitated. How will family members access those accounts or terminate recurring charges for services? Where and how would they find the usernames and passwords required to continue paying the individual’s bills or finding their personal and important documents or photos stored in the cloud?

Despite all of the conveniences of technology, challenges arise when family members and executors attempt to gain access to these digital assets to carry out the provisions established in a decedent’s estate plan. Not only may family members be unaware of the existence of some accounts and their related usernames, passwords and security questions, but they also may find that the online accounts have a legal right to deny access to family members. To prevent these challenges and grant loved ones easy access to online accounts and treasured assets stored in the cloud, individuals should address their digital assets in their estate plans.

Digital Asset Management and Planning

With increased reliance on the web, cloud computing and personal devices, the ability to take stock of the entirety of one’s online presence may seem overwhelming. However, setting aside the time now to prepare a list of all of one’s digital assets will save his or her heirs significant time and stress down the road.

• Take Inventory of Digital Assets. Create two lists of all online accounts, one for business assets and one for personal assets. For each list, include usernames, passwords, PINS and answers to security questions for the following accounts:

o Email

o Financial banking, credit cards, brokerage, insurance and PayPal accounts

o Utilities, such as Internet service provider and electricity

o Tax filing sites, such as e-file and EFTPS accounts

o Social media accounts, including Facebook, Twitter, LinkedIn

o Shopping sites, such as Amazon and eBay

o Travel accounts used for hotel bookings and managing airline mileage

o Entertainment sites such as iTunes, Hulu and Netflix

o Sites for storing and sharing photos, videos and important documents

• Store Digital Assets Safely. Security experts recommend that individuals never save their login information on paper, where anyone could gain easy access. Nor should individuals include login information in their wills, which could become public record upon their passing. Instead, such lists can and should be stored in safety deposit boxes or with any of the many password-manager apps and services available online. In either case, individuals should ensure that they share the location and accessibility of this information with their personal representatives and/or estate planning counselors.

• Document and Authorize Access to Digital Assets. Individuals should update their wills, power of attorney appointments and estate plans with specific language that authorizes personal representatives to access their digital assets. They may also want to provide directions on how they want their personal representatives to manage or delete online accounts. Many online accounts require a death certificate and copy of the account holder’s photo identification in addition to a copy of the will and letters of administration in order to access, delete or deactivate an account.

• Update, Update, Update. Digital assets and login information should be kept current as new online accounts are opened, passwords are changed and apps are added to personal devices.

Estate plans must keep up with changing times and new technologies. Providing family members and/or personal representatives with a list of all of one’s digital assets and means of access to those online accounts ensures the preservation of one’s wishes and smooth settlement of his or her assets, including the virtual ones.

About the Author: Barry M. Brant, CPA is director of Berkowitz Pollack Brant’s Tax, Consulting and International Services practices. For more information, call (305) 379-7000 or email

Severance Pay is Subject to FICA Taxes by Joanie Stein

Posted on June 17, 2014 by Joanie Stein

In March 2014, the U.S. Supreme Court ruled that severance payments made to terminated employees are considered taxable wages under the Federal Insurance Contributions Act (FICA).

At stake before the Court was approximately $1 million in refunds that Quality Stores sought for FICA taxes it paid on severance payments made to thousands of terminated employees. Quality Stores contended that severance payments should have been considered supplemental compensation benefits (SUB) and consequently exempt from FICA tax.

In its opinion, the Court looked to Congress’s broad definition of wages as “all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash.” It further ruled that he term “employment” extends to “any service, of whatever nature, performed … by an employee for the person employing him.”

Under this definition, the Court ruled that severance payments made to terminated employees are “remuneration for employment.” The Court further explained that severance payments are made to employees only, and not to individuals who have not worked for the employer. As a result, the Court ruled, severance payments are subject to Social Security and Medicare taxes.

About the Author: Joanie B. Stein, CPA, is a senior manager in the Tax Services practice with Berkowitz Pollack Brant. For more information, call 305-379-7000 or email

Businesses Face a Landmine of State and Local Tax Issues as States Keep Pace with 21st Century Business by Karen Lake

Posted on June 09, 2014 by Karen Lake

To sustain financial stability and fill budget gaps left over from the recession, states across the country are continuing to look for new ways to generate tax revenue. Introducing new legislation and stepping up enforcement of existing state and local taxation (SALT) laws are just the tip of the iceberg in the aggressive steps that state and local governments are taking to bolster their coffers.


A most significant trend has states looking outside their borders to assert economic nexus by attempting to establish a connection between the state and businesses, which would enable the state to collect taxes from that business, including corporate income tax, sales and use tax and franchise tax. The result is a dangerously fragile landscape on which businesses will need to tread carefully to examine their out-of-state business connections and identify nexus-creating activities that could result in levies of additional federal, state and local taxes.


What Constitutes Nexus?

Nexus is as a minimum connection a business must have in order for a state to tax the business or force it to collect taxes on the state’s behalf. Complicating nexus determinations is a general lack of one unified standard across the 50 states and 11,000 jurisdictions that collect business taxes.


Sometimes, nexus is obvious, such as when a business has a physical presence in a particular state. This can be in the form of a warehouse or another building that the company owns. At other times, a business may have “economic ties” to a particular state, which may make the nexus determination more difficult, especially when the rules governing these economic ties vary from one state to the next. These may includes situations in which a business conducts sales and other transactions online, or if it owns an out-of-state subsidiary or employs tele-commuters, sales forces or independent contractor located outside of its home state.


For example, the New York State Department of Taxation and Finance ruled that out-of-state companies who used New York-based independent contractors to direct traffic to their websites constituted a New York nexus. In Washington, the department of revenue interpreted an even narrower definition of “physical presence,” which a business may satisfy if an employee or independent contractor makes as little as two to three visits to the state during a year. Similarly, the state of Virginia recently required an out-of-state company to file a Virginia corporate income tax return because one single employee, who tele-commuted from her home office in Virginia, created nexus for the employer in that state.


These divergent nexus determinations represent a sampling of just how muddied connections may be and how inconsistent they are from one state to the next. Businesses may not recognize the impact of seemingly insignificant out-of-state or Internet-based activities and as a result, may go on for years without recognizing the established nexus until taxing authorities come knocking on their doors.


Once nexus has been established, or even when it may be presumed, businesses should err on the side of caution and begin filing returns in those states and paying appropriate taxes on income it earns. Failure to do so can have devastating consequences that may include demand for back taxes, including penalties and interest, that could date as far back as the year a company started doing business in a particular state.

Nexus in E-Commerce

The prevailing law governing nexus relating to remote catalog or 21st century online transactions is Quill Corp. v. North Dakota, in which the Supreme Court ruled that no state can force a business to collect sales taxes unless the business has a physical presence, such as a store, office or warehouse, in the state. Furthermore, the decision granted Congress, and only Congress, with the powers to grant tax collection powers to states. Despite this, many states are seeking to work around the Quill decision by making their own interpretations of what constitutes “physical presence.”


In 2008, New York enacted a “click-through nexus” statute that considers out-of-state sellers to be doing business in the state, and therefore required them to collect sales and use taxes, when the sellers provide referral commissions through sponsored links on websites owned by New York residents. Since that time, numerous other states have enacted similar “Amazon laws,” named after the e-tail behemoth Texas, for example, demanded $269 million in back use taxes from Amazon, which later negotiated and reached a deal to pay its fair share of the tax to the state. Both and sought to repeal the law, to which the Supreme Court said “no” and kicked the issue back to Congress to address state tax collection.


In May 2013, the U.S. Senate voted to pass the Marketplace Fairness Act (MFA), which would allow the 24 Streamline Sales Tax State Agreement (SSTSA) member states to compel business to collect sales and use tax on all sales transactions, even when retailers do not have a physical presence in the state where the purchaser resides. The MFA currently awaits a vote by the House of Representatives.


Nexus in the Cloud

The increased use of Internet-based software, applications and cloud storage has provided states with new opportunities to expand their tax bases and treat previously non-taxable licenses as taxable purchase or rentals of tangible personal property. For example, some states, such as New Jersey, have chosen not to tax Internet-based application service providers (ASPs) when end-users do not possess nor download their applications. States such as Florida impose sales and use tax on software licenses delivered on a tangible medium while other states, such as New York and New Mexico, tax access-only service at the location where the end-user is located. Still, several other states have concluded that certain cloud transactions constitute nontaxable services, based largely on the determination that they involve the sale of services rather than the sale of tangible personal property.


It does not appear that there will be any abatement in the states’ efforts to push the nexus envelope in order to increase their tax bases. Monitoring evolving statutes and addressing relevant nexus issues should be paramount among 21st century companies that rely on disbursed workers, marketing affiliates and Internet and cloud-based services to operate their businesses.


The tax advisors and accountants with Berkowitz Pollack and Brant understand the nuances in state and local tax laws and have extensive experience working with businesses of all sizes and in various states to conduct nexus studies and meet their related tax obligations.


About the Author: Karen A. Lake, CPA, is a State and Local Tax (SALT) specialist in Berkowitz Pollack Brant’s Tax Services practice. For more information, call 305-379-7000 or email


What You Need to Know about Amended Tax Returns by Adam Slavin

Posted on June 05, 2014 by Adam Slavin

After April 15, individuals who discover they forgot to include important information in the tax files they shared with their accountants, or who made mistakes on their federal tax returns, have an opportunity to make corrections by filing an amended return.

Filing an amended return requires attention to the following:

• File an amended tax return only when there is an error in filing status, income, deductions or credits on a taxpayer’s original return.

• There is no need to file an amended return to correct math errors or because forms, such as W-2s, were not attached to the original return.

• File an amended tax return on paper using IRS Form 1040X Amended U.S. Individual Income Tax Return. E-filing is not permitted.

• The IRS allows taxpayers three years from the date of filing their original tax returns to file an amended return with Form 1040X or they may file within two years from the date they paid the tax, if that date is later. Special rules apply to certain claims, for which a certified accountant can provide guidance.

• When amending more than one tax return, prepare a Form 1040X for each year and mail each form in separate envelopes.

• When expecting a refund from an original return, wait to receive that refund before filing Form 1040X.

• When additional tax is due, file Form 1040X and pay the tax as soon as possible in order to reduce interest and penalties.

• Be patient. Amended returns take up to 12 weeks to process.

• Track the status of the amended tax return three weeks after filing it by calling 866-464-2050, by visiting the IRS website’s “Where’s My Amended Return” tool or by downloading the IRS2Go app, which is available on both Apple and Android devices.

About the Author: Adam Slavin, CPA, is a senior manager in Berkowitz Pollack Brant’s Tax Services practices. For more information, call (561) 361-2000 or email

Make the Most of Charitable Contributions by Adam Cohen

Posted on June 02, 2014 by Adam Cohen

Giving to charity helps non-profit agencies carry out their missions and can provide donors with a deduction that reduces their annual taxable income. However, the IRS provides specific rules governing how these charitable contributions can lower individuals’ tax bills depending on the type of donation, its value and the taxpayer’s income.

1. Make donations to qualified charities. The IRS website offers a searchable database at

2. Do not deduct contributions made to specific individuals, political organizations and candidates, which are unallowable.

3. File Form 1040 and Schedule A to itemize charitable deductions. Note that the IRS imposes limits on itemized deductions for 2014 when taxpayers’ incomes exceed $305,050 for married couples filing jointly, or $254,200 for individual filers.

4. Obtain a receipt with a description of the donation from the charitable organization for contributions of cash or property exceeding $250.

5. Obtain an appraisal for donations of items valued at more than $5,000 and complete Section B of Form 8283.

6. File Form 8283, Noncash Charitable Contributions, when claiming deductions for all non-cash gifts that exceed $500 in a given year. For C Corporations, Form 8283 must be filed when non-cash donations exceed $5,000, while partnerships and S Corporations must file Form 8283, along with Form 1065, 1065-B, or 1120S, when they make non-cash donations of more than $500.

7. Determine the “fair market value” of donated property, which is the price one would receive when selling the property on the open market. Note that some property will decrease in value while others may appreciate.

8. Keep records that provide proof of donations. These can include a letter from the organization, a bank statement or cancelled check, or a cellular phone bill for donations sent via text.

As of April 1, 2014, the IRS limits charitable contributions to between 20 and 50 percent of a taxpayer’s adjusted gross income (AGI), depending on the type of donation and charity. However, some lawmakers are currently toying with the idea of limiting charitable deductions to instances when they exceed 2 percent of taxpayer income.

Berkowitz Pollack Brant’s tax advisors and accountants keep abreast of changing tax guidance and work closely with individuals, businesses and non-profit organizations to comply with regulations and maximize tax efficiencies.

About the Author: Adam Cohen, CPA, is an associate director in Berkowitz Pollack Brant’s Tax Services practice. For additional information, call (954) 712-7000 or e-mail

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