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Monthly Archives: August 2015

Do You Need a Construction Overrun Investigation? by Joel Glick, CPA/CFF, CFE

Posted on August 31, 2015 by Joel Glick

Developers, building owners and construction contractors are keenly aware that as a real estate project progresses to completion, sizeable differences often exist between initial budget estimates and the final tally of the project’s total cost and capital expenditures. When these costs are inaccurately estimated prior to the commencement of work, an avalanche of change orders can ensue, causing schedule delays and cost overruns. In some cases, one or more parties may file legal claims against the others to recover the costs above the contracted prices. However, before allowing overruns to escalate to this point, project owners should consider the benefits of engaging construction consultants/engineers and forensic accountants to conduct a construction overrun investigation.

 

This type of investigation involves examining the underlying project records along with the accounting records to identify and quantify the source(s) of higher than expected costs and its impact on the total project budget. These studies may further assist in improving communication and relationships between owners and contractors, and, in extreme cases, help to demonstrate a causal link between a party’s action, or lack of action, and a loss, which is required to recover damages in legal proceedings.

 

The Source of Construction Overruns

The reasons why a construction project can exceed estimated budgets and result in a significant number of change orders are vast. Some of the most common causes include:

  • Design and scope changes
  • Field conditions
  • Fluctuations, especially increases, in the costs of labor, materials and equipment
  • Poor workmanship
  • Poor record-keeping
  • Product defects
  • Labor productivity
  • Unexpected costs
  • Inaccurate budgeting and/or method of cost estimation
  • Code revisions
  • Intentional fraud and corruption

 

When project costs exceed the estimated budget it is usually the result of a combination of the above factors, especially in a construction project with so many moving parts. Identifying the cause is not always simple and sometimes there are competing causes. However, when performing a construction overrun investigation, professionals can conduct a complex process of assessing the underlying documentation involved in a project, identifying and separating the potential sources of an overrun and prioritizing them by degree of causation.

 

Quantifying Cost Overruns

Whereas a qualitative analysis of cost overruns helps to identify how and why they occurred, a quantitative analysis of cost overruns aims to assign a dollar value to them. The process of quantification can be likened to finding a needle in a haystack, as it often requires exhaustive reviews of voluminous amounts of project records stored both digitally and in hard copies. Diligence and attention to detail are key and require the skill of experienced forensic accountants working hand-in-hand with construction engineers to identify the underlying causes of cost overruns and apply sound financial strategies to quantify claims and determine if excessive costs are appropriate and justified.

 

For example, a developer may claim that cost overruns resulted from excessively high expenses incurred for a crane operator. Demonstrating such a claim requires not only going back and reviewing the number of hours the crane was in use and the related charges for labor, but also comparing those assumptions against the facts relating to the time of the year and weather conditions during use. If the crane was used during the fall or the winter months when daylight hours are limited, it would be unreasonable for a project to incur excessive costs for labor to operate it beyond daylight hours. Costs may also be considered unreasonable if weather conditions on the dates the crane was purported to have been in operation were so severe that use would have been hindered.

 

Similarly, a developer may set out to make minor renovations to an existing property at a modest budget. However, as work progresses, the developer may decide to expand the scope of the project, make substantial renovations and even reposition the property for a different use. Realistically, the developer will expect an increase in the initial project budget. However, not all subsequent cost overruns and schedule delays will be a result of the developer’s commitment to do more work. A cost overrun investigation that reviews schedules and accounting records will point to how the budget changed over time, identify where increased costs were justified and where they were inappropriate and allocate a dollar value for each.

 

Construction overrun investigations are complex and time-intensive endeavors. However, the benefits they provide to property developers, owners, operators and contractors can go a long way to identify budget traps, improve scrutiny of change orders and improve cost efficiencies into the future.

 

About the Author: Joel Glick, CPA/CFF, CFE, is an associate director in the Forensic and Business Valuation Services practice with Berkowitz Pollack Brant, where he serves as a litigation consultants and forensic accountant in matters relating to bankruptcy and receivership, economic damages and forensic investigations. He can be reached in the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

Sponsors of 401(k) Plans Must Heed Supreme Court Warning by Sean Deviney, CFP

Posted on August 30, 2015 by Richard Berkowitz, JD, CPA

A recent U.S. Supreme Court decision reaffirmed that the fiduciary duty of employers sponsoring 401(k) plans extend beyond the six-year statute of limitations. In its unanimous decision, the court ruled that 401(k) fiduciaries must monitor investments, dispose of inappropriate assets and minimize management fees on a continuous and regular basis. According to the court, “an ERISA fiduciary’s duty is derived from the common law of trusts… and a trustee has a continuing duty to monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.”

 

This ruling is an important reminder that plan sponsors should develop detailed investment policies and take steps to follow and documents prudent fiduciary principles. The professionals with Provenance Wealth Advisors work with businesses of all sizes to design benefits plans and implement best practices to meet regulatory compliance and serve the needs of plan sponsors and participants.

 

About the Author: Sean Deviney is a CFP®* professional and retirement plan specialist with Provenance Wealth Advisors, an independent financial services firm that often works with Berkowitz Pollack Brant Advisors and Accountants. For more information, call 800-737-8804 or email info@provwealth.com.

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

Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC.

Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of PWA and not necessarily those of Raymond James. You should discuss any legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

* Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

 

 

 

Supreme Court Ruling Keeps Obamacare on Track for Individuals and Employers by Adam Cohen, CPA

Posted on August 28, 2015 by Adam Cohen

On June 25, 2015, the U.S. Supreme Court upheld a key provision of the Patient Protection and Affordable Care Act (ACA) and extended tax credits to applicable individuals who purchase health insurance on the federal exchange at healthcare.gov.

At issue in King v. Burwell was how the ACA worded the provision that an “applicable taxpayer” with a household income between 100 percent and 400 percent of the federal poverty line “shall be allowed” to receive tax credits if he or she enrolls in an insurance plan through “an Exchange established by the State.” In the court’s majority decision, Chief Justice Roberts wrote that the premium tax credit should be interpreted and consistent with the intent of the law “to improve health insurance markets” and to “make insurance more affordable…“Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts and to avoid the type of calamitous result that Congress plainly meant to avoid.” As a result, qualifying individuals may receive tax subsidies to cover the costs of purchasing insurance whether they do so on one of the state-run exchanges or on the federal exchange.

With the court’s decision, employers in the more than 30 states that have not established their own health insurance exchanges can be reassured that their employees will not lose coverage, and their businesses will not risk exposure to the Employer Shared Responsibility provisions of the ACA. To remain compliant, businesses must track and report full-time employees and their access to affordable and adequate health coverage or risk penalties. More specifically, as of January 1, 2015, businesses with 100 or more full-time employees must offer health insurance to 70 percent of its workforce and their dependents; Businesses with 50 to 99 full-time employees will have an additional year to comply with the employer shared responsibility provisions, which go into effect in 2016.  Businesses that fail to offer health insurance to their full-time employees and their dependents may be subject to an Employer Shared Responsibility payment equal to $2,000 for every full-time employee after the first 80.  In 2016, the penalty will apply to every uncovered employee after the first 30.

 

About the Author: Adam Cohen, CPA, is an associate director with Berkowitz Pollack Brant’s Tax Services practice, where he provides tax planning and compliance services to businesses and non-profit organizations.   He can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via e-mail at info@bpbcpa.co

You’re Never Too Young to Begin Estate Planning by Stefan Pastor

Posted on August 27, 2015 by Richard Berkowitz, JD, CPA

Most individuals in their 20s and 30s pay little attention to estate planning. Why should they? They are just beginning their careers, earning often modest wages and a long way off from retirement. However, experts agree that those early years are the perfect time to start planning for life’s what-ifs and preparing to build a foundation for a solid financial future.

Estate planning is an all-encompassing term that can include financial planning, debt management and asset protection. It also covers a range of matters that extend beyond dollars and cents, including how major life decisions will be made. For example, individuals as young as 20 should consider having in place the following documents to protect themselves:

  • A living will that details one’s wishes regarding the use of life-supporting and prolonging medical treatments;
  • A healthcare power of attorney that authorizes a friend or family member to make medical decisions on one’s behalf in the event he or she incapacitated or unable to make decision on his or her own;
  • A HIPAA waiver that grants doctors permission to share an individual’s personal health information to third parties, such as other doctors or family members; and
  • A financial power of attorney to designate their parents or another family member to make financial decisions and pay bills on their behalf, if they become unable to do so.

In addition, new workers should begin saving for their future by taking advantage of employer-sponsored 401(k) plans or establishing their own retirement savings account, such as an IRA, that allows savings to grow tax deferred.

As one takes on more responsibilities, starts a family and builds longer-term goals, their estate plans should reflect this lifestyle shift and be supplemented with the following:

  • A will or a living trust that details how one wishes to pass assets upon his or her death and provide care for a spouse, children or aging parents,
  • Life insurance to protect the financial well-being of surviving family members upon one’s death
  • Disability insurance to ensure income should an injury or illness prevent an individual from conducting work

Estate planning is a life-long process that should begin during one’s early years to establish good financial habits and prepare for an uncertain, yet rewarding, future.

About the Author: Stefan Pastor is a registered representative with Raymond James Financial Services and a financial planner with Provenance Wealth Advisors, an independent financial services firm affiliated with Berkowitz Pollack Brant Advisors and Accountants. He can be reached at 800-737-8804 or email info@provwealth.com.

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

Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC.

Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Stefan Pastor and not necessarily those of Raymond James. You should discuss any legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

 

 

 

Being Defective Can Prove to be Good Financial Planning by Jeffrey M. Mutnik, CPA,PFS

Posted on August 26, 2015 by Jeffrey Mutnik

Establishing a grantor trust is one of many strategies tax-planning professionals recommend wealthy Americans employ to mitigate or eliminate exposure to probate and/or U.S. estate and gift taxes. Unfortunately, this transfer-tax planning tool is at risk of losing some of the benefits it currently provides.

 

In its purest form, a grantor trust simply means that the grantor/settlor created the trust as a legal entity separate from him or herself, except for tax purposes. The trust is not taxed. Rather, all of the trust’s income is taxable to the grantor, who either reports trust activity directly on Form 1040 of his or her annual tax return, when the grantor’s social security number is reflected on all assets and tax documents (1099’s, etc.), or indirectly, when the trust files an income tax return using Form 1041 but identifies itself as a grantor trust. The trust provides to the grantor a letter reflecting all of the activity that the grantor is required to report and the resulting tax burden.

 

Most people encounter a grantor trust when they create a revocable trust as part of their estate plans – principally to avoid probate of their estates upon death. It is well-established and understood that a revocable trust is the grantor’s alter ego. The underlying law of this phenomenon is that a revocable trust, by definition, allows the grantor to revoke it and take its assets. However, revocability is not the only way that a trust will be treated as a grantor trust for income tax purposes. Grantors may create an irrevocable trust and include a clause detailing the intention to treat it as a grantor trust for income tax purposes. For example, the grantor may be able to substitute his or her own property of equal value for property in the trust. This retained power defines the trust as a grantor trust. Why is the distinction important? The difference can mean keeping the underlying trust assets in the grantor’s estate or removing them at the time of transfer.

 

Revocable or Irrevocable – That is the Question

 

A revocable trust provides the grantor complete control over the trust assets, which remain a part of the grantor’s taxable estate. Conversely, as the name implies, an irrevocable trust cannot be changed by the grantor. Thus, the assets used to fund the trust are considered a completed gift and removed from the transferor’s taxable estate.

 

Herein lies a dichotomy between income taxes and gift and estate taxes: if the grantor retains certain control of the trust or its assets, the transfer is not considered complete for income tax purposes. An irrevocable trust can be designed to be a grantor trust that requires the grantor to report trust activity. Applying this strategy enables the trust principal to grow free of potential income tax burdens and may reduce the grantor’s estate tax by using his or her other assets to pay income tax on the trust activity. Paying one’s own income tax is a personal obligation; paying another’s is a gift.

 

Many planners call this type of trust “defective,” although it is neither faulty nor flawed in any way. Rather, the grantor intentionally drafts the trust to produce the results he or she desires.

 

Currently, the White House and Treasury Department are attempting to limit the usefulness of intentionally defective grantor trusts (IDGT), which, when properly drafted, could save the grantor’s family significant estate taxes for hundreds of years.

 

Recent comments by government officials make it apparent that combining various techniques for transferring assets via gift or sale to an IDGT may become disallowed for tax purposes, sooner rather than later. Transactions with cash or marketable securities take less time to value than transfers of real property or business interests that should be supported with qualified appraisals.

 

Taxpayers contemplating such a transaction should review their estate plans immediately, as it appears that time is of the essence.

 

About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director with the Taxation and Financial Services practice of Berkowitz Pollack Brant Advisors and Accountants, where he provides tax and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached in the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at info@bpbcpa.com.

3 Ways to Maximize Losses from Passive Investment Activities by Angie Adames, CPA

Posted on August 20, 2015 by Angie Adames

Harvesting losses is one of the most basic tenets of taxation; losses may offset gains to reduce taxable income. Yet, this rather simple concept is significantly more complex for high-income taxpayers who operate pass-through businesses and whose investments in businesses and/or real estate generate interest income, dividends and capital gains. For these taxpayers, a clear understanding of the passive activity loss rules is needed to protect income and limit exposure to higher tax liabilities, including the 3.8 percent Medicare surtax on net investment income.

Internal Revenue Code Section 469 limits the amount of losses from passive activities that taxpayers may claim on their returns. More specifically, losses recognized from passive activities may not be deducted from income derived from non-passive activities in which the taxpayer materially participates. As a result, taxpayers must separate their income-generating activities into two groupings: passive and non-passive. An activity is classified as passive if the activity is (1) a trade or business activity in which the taxpayer does not materially participate during the year, or (2) a rental activity. Under the Code, tax losses from rental real estate activities are “per se” passive, and can only be deducted to the extent a taxpayer has passive income from other sources. Otherwise, the losses get carried over to future tax years to be deducted when the taxpayer has passive income available or when he or she sells the investment that generated the passive losses.

Conversely, taxpayers may claim on income tax returns losses and credits related to non-passive activities for which they can establish “material participation” on a “regular, continuous and substantial” basis. Doing so requires taxpayers to satisfy one of seven tests, including:

  1. Taxpayer’s participation  in the activity exceeded 500 hours during the year,
  2. Taxpayer’s participation  constituted substantially all of the work in the activity by any individual for  the year,
  3. Taxpayer’s  participation exceeded 100 hours during the year and was not less than any  other individual’s participation in the year,
  4. The activity was a  “significant participation activity” (SPA), or a trade or business activity for  which the taxpayer worked a minimum of 100 hours or more than 500 hours during  the year, and the individual’s aggregate participation in all SPA during the  year exceeded 500 hours,
  5. Taxpayer materially participated  in the activity for five of the prior consecutive or non-consecutive 10 years,
  6. The activity is a  personal service for which the taxpayer materially participated for any of the  three prior consecutive or non-consecutive tax years,
  7. Based on all of the facts and circumstances, the taxpayer participated in the activity on a regular, continuous and substantial basis during the year.

Sounds simple? It is not! Code Section 469 carves out a special exception for real estate professionals whose net losses on rental real estate are generally limited to $25,000, which is phased out when adjusted gross income exceeds $100,000. However, a taxpayer with rental income may escape the passive activity loss limitations if he or she can meet the following criteria to qualify as a “real estate professional”:

  1. More than half of the personal services the taxpayer  performed during the year was performed in connection with a real property  trade or business
  2. Taxpayer spent more than 750 hours working in a real property  trade or business in which he or she “materially” participated in a tax year

To complicate these matters, a taxpayer who engages in multiple rental real estate activities may still fail the material participation and real estate professional test when considering how the IRS treats each activity as a separate activity. For example, a taxpayer who owns three rental properties, A, B and C, would be required to satisfy the material participation requirements separately for each rental property. However, the taxpayer may be able to make an election under Code Section 469(c)(7) to treat all rental real estate activities as one activity.  The taxpayer would need to file a statement with his or her original income tax  return declaring that (1) the taxpayer is eligible to file an election and (2)  the election is being made under Code Section 469(c)(7)(A). The taxpayer may not group his or her rental real estate activities with non-rental real estate activities in determining his or her material participation in rental real estate activities.

While the IRS does not require taxpayers to maintain contemporaneous documentation of their time participating in business and real estate activities, it is prudent to keep reasonable records, especially in light of the recent rise in audits involving claims of non-passive activities. The burden of proof falls on the taxpayers, who should review their passive activities and consider the beneficial and potentially negative tax implications of proving material participation, qualifying as real estate professionals or making grouping elections. Actions taken today may have far reaching affects in later years.

About the Author: Angie Adames, CPA, is a senior manager  with the Tax Services practice of Berkowitz Pollack Brant, where she provides  tax and consulting services to real estate companies, manufacturers and closely  held businesses. She can be reached in the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

Know Your Intent to Qualify for 1031 Exchange Tax Deferral by John G. Ebenger, CPA

Posted on August 18, 2015 by John Ebenger

Despite governmental efforts to repeal or limit taxpayer use of 1031 exchanges, a robust real estate market is driving demand for this powerful tax-planning tool. Under Section 1031 of the Internal Revenue Code, individuals may defer taxes on the sale of certain business or investment property when they reinvest the profits into new, similar property of equal or greater value. Essentially, money that taxpayers would have paid to cover taxes on the gain from a sale of one asset are instead reinvested in a similar asset or assets and treated by the IRS as a reinvestment of capital that is not subject to taxation. Taxpayers may sell a long-held, low-tax-basis investment property that has appreciated in value without incurring significant federal and state income taxes, and they may change the form of the “like-kind” asset to allow their original investment dollars to continue to grow tax-free.

Yet, taking advantage of 1031 exchanges requires careful planning and understanding of a complex set of rules.

Definition of Like-Kind Property

To qualify for 1031 treatment, both the asset sold and the asset acquired must be “held for either productive use in a trade or business or for investment.” They may include commercial real estate, farm land, art or a wide range of highly valued assets. Because the law requires the properties for exchange to be of similar nature but not of the same quality, investors, developers or builders may swap a residential condo building for an office building or a retail complex for unimproved land. They may also exchange investment property for property used in their business or trade.

The Importance of Intent

To determine whether a transaction qualifies for 1031 treatment, the IRS looks at the property holder’s intent to use the property in a trade or business or for investment purposes by assessing the following factors:

Frequency of Taxpayer’s Real Estate Transactions. While taxpayers may engage in multiple 1031 exchanges in a year, the more property sales they have, the more likely the IRS will consider them to be “dealers” who hold assets for sale and, in most cases, will not meet the qualified use test required for 1031 treatment.

Taxpayer’s Development Activity. A property may be disqualified from 1031 treatment when the taxpayer’s efforts to improve the asset through the addition of utility services, roads or other activities that can influence the gain on the sale of the property.

Taxpayer’s Efforts to Sell the Property. The IRS looks at the amount of time, effort and involvement a taxpayer expends to control the sale of property to determine the applicability of a 1031 exchange.

Length of Time Taxpayer Holds the Property. While there are not specific rules detailing how long a taxpayer must hold a property for investment or business purposes to qualify for a 1031 exchange, the IRS generally accepts a period of two years. “Flippers” and other investors who purchase a property immediately prior to a 1031 sale or who sell a property soon after a 1031 transaction can be disqualified from claiming tax deferral.

Purpose for which Taxpayer Holds the Property. The IRS consider the purpose for which the property is held at the time of sale to determine application of 1031 exchange tax benefits. The purpose for which the property was originally acquired may have no influence on the decision. Therefore, a developer may purchase raw land with the intent to build single-family homes and later build rental units or sell portions of the land. Similarly, a homeowner who purchases a primary residence may later decide to rent out the home for investment purposes and subsequently sell the property as part of a 1031 exchange.

1031 exchanges help investors and certain developers extend the value of their holdings by reinvesting profits rather than paying capital gains tax. In light of the government’s attempts to limit these tax benefits, individuals should meet with tax professionals now to assess their current assets and proposed property sales to identify relevant planning opportunities.

About the Author: John G. Ebenger, CPA, is director of Real Estate Tax Services with Berkowitz Pollack Brant where he works closely with developers, landholders, investment funds and other real estate professionals as well as high-net-worth entrepreneurs with complex holdings. He can be reached can be reached in the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.

Tax Credits vs. Tax Deductions by Jeffrey M. Mutnik, CPA/PFS

Posted on August 17, 2015 by Jeffrey Mutnik

The Senate Finance Committee recently voted to extend more than 50 expired tax breaks for two years. While Americans await a full Congressional vote, now is a good time for taxpayers to gain an understanding of the difference between tax credits and tax deductions.

Both tax credits and tax deductions are intended to reduce individuals’ tax obligations.  Yet, the benefits any one individual may yield from these tax-saving devices depend on facts and circumstances of the situation in question.

Tax Credits

A tax credit is an incentive that allows taxpayers to reduce the amount of taxes they owe to the government, dollar-for-dollar. It is often tied to a particular behavior, such as an individual buying a first home or purchasing energy-efficient appliances, or a business investing in research and development or hiring veterans. With each credit, qualifying taxpayers may subtract a dollar amount from their existing tax liabilities. However, there are limits on these credits, which may make them available or unavailable based on an individual’s income, filing status and allowable deductions.

Most tax credits are non-refundable, which means that any unused portion of the credit expires in the year it is used and cannot be carried forward to apply to future tax years.  In these instances, credits cannot reduce an individual’s tax liability to less than zero.

Conversely, refundable tax credits can reduce tax liabilities below zero by providing qualifying individuals with a tax refund when the applicable credit is more than the amount of taxes they owe.

Tax Deductions

Unlike credits that directly affect the amount of taxes owed, tax deductions are used to determine taxable income and can thereby reduce the amount of income that is subject to tax. Tax deductible expenditures include retirement plan contributions, medical and dental expenses, real estate taxes, charitable contributions and job-related expenses.  The true value of the deduction depends on an individual’s tax bracket and ability to use the deduction against his or her highest marginal tax rate.

Some deductions, such as the penalty on early withdrawal of savings, are available to offset gross income to compute taxpayers’ Adjusted Gross Income (AGI). Other deductions (the standard deduction and itemized deductions) are allowed from AGI. Taxpayers have an annual choice to use either the standard deduction allowable for their filing status or to itemize their deductions.  The 2015 standard deduction for single taxpayers is $6,300, and $12,600 for married couples filing jointly.

Taxpayers whose itemized deductions exceed the standard deduction will most likely reap more tax savings when they itemize.  However, when income exceeds certain thresholds, taxpayers should be mindful that they will be limited in the amount of various deductions they may claim. For example, to generate tax benefits in 2015, taxpayers’ medical and dental expenses must exceed 10 percent of the AGI on their returns. In addition, most miscellaneous expenses, such as investment management fees, are aggregated and must exceed 2 percent of the AGI on the return in 2015 to begin to garner tax benefits. Total itemized deductions may also be subject to limitations for high income individuals, and certain items will not be deductible at all for Alternative Minimum Tax purposes.

About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director with the Taxation and Financial Services practice of Berkowitz Pollack Brant Advisors and Accountants, where he provides tax and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached in the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at info@bpbcpa.com.

Moving Forward After the Death of a Spouse by Kathleen Marteney, CRPC

Posted on August 13, 2015 by Richard Berkowitz, JD, CPA

The death of a spouse is perhaps the most stressful time an individual can endure during his or her lifetime. In addition to often paralyzing grief, questions of uncertainty and decisions for the future are suddenly thrust onto the surviving spouse’s plate. Knowing where to turn for help and prioritizing an action plan are key to managing through and surviving on one’s own.

Take a Breath to Get Organized. Nothing needs to be done immediately. Take time to grieve. Buy a notebook to write down questions and concerns as they come to mind and start compiling a list of family advisors, such as financial planners, accountants and lawyers.

Schedule Meetings with Trusted Advisors. These professional have deep experience managing one’s affairs after death. They can help to review existing finances and estate plans, identify issues and guide a surviving spouse through the processes of probate, tax liabilities and filings, and establishing a new financial plan for the future.

Develop an Action Plan. Decisions made too quickly or without thorough analysis can result in significant losses. Relying on one’s trusted advisors to develop a plan of action tailored to his or her unique situation and capabilities can help surviving spouses minimize missteps, maximize opportunities and provide the reassurance often needed to move forward with confidence.

Work the Plan. With a plan in place, surviving spouses can more easily begin the process of settling the deceased estate, taking control of their new financial situations and establishing a thriving future for themselves.

About the Author: Kathleen Marteney, CRPC, is a registered representative with Raymond James Financial Services and a financial planner with Provenance Wealth Advisors, an independent financial services firm affiliated with Berkowitz Pollack Brant Advisors and Accountants. She can be reached at 800-737-8804 or email info@provwealth.com.

 

Provenance Wealth Advisors, 200 S. Biscayne Blvd., Miami FL 33131 (954)712-8888

Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC.

 

Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants.

 

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Kathleen Marteney and not necessarily those of Raymond James. You should discuss any tax and legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

 

 

Does Your Small Business Qualify for a Health Care Tax Credit? by Adam Cohen, CPA

Posted on August 12, 2015 by Adam Cohen

Small businesses that purchase health insurance for employees through the Small Business Health Options Program (SHOP) may qualify for a tax credit worth up to 50 percent of their premium contributions. To be eligible for the credit, small businesses, including those that are tax-exempt, must meet the following criteria:

  • Have fewer than 25 full-time equivalent employees
  • Pay an average wage of less than $50,000 per year
  • Pay at least half of the premiums for the health plans they purchased on behalf of employees through a SHOP

The tax credit is available for two consecutive taxable years and can be carried back or forward to offset taxes employers owe in past or future years. Moreover, because the amount of insurance premiums paid is more than the total credit, small businesses can deduct the difference. For small tax-exempt employers, the credit of up to 35 percent of premium contributions is refundable. Therefore, organizations without taxable income may receive the credit as a refund, as long as it does not exceed income tax withholding and Medicare tax liabilities.

Eligible small businesses that failed to benefit from the health care tax credit on their 2014 returns still have time to make a claim through the filing of an amended tax return.

About the Author: Adam Cohen, CPA, is an associate director with Berkowitz Pollack Brant’s Tax Services practice, where he provides tax planning and compliance services to businesses and non-profit organizations.   He can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via e-mail at info@bpbcpa.com.

Take Tax Planning Off Auto-Pilot, Align with Life Events by Jeff Mutnik, CPA/PFS

Posted on August 11, 2015 by Jeffrey Mutnik

Many people put their income tax responsibilities on cruise control, taking a “same as last year” approach to their April 15 filing requirements. However, taking one’s eye off the road and ignoring how life events can change one’s tax position can result in lost opportunities.

 

Marriages, births, adoptions, death, divorce and buying or selling a home come with significant tax consequences – both positive and negative – that require advance planning and budgeting to prepare returns and meet one’s resulting tax liabilities.

 

Getting married creates multiple levels of tax complexity that will vary depending on whether both spouses work or have existing portfolio assets.  Couples must consider whether it is less costly to file their taxes jointly or married filing separately and if there will be any gains on the sale of assets, such as one spouse’s primary residence, before or during the marriage.

 

The American dream of home ownership may provide tax benefits for individuals who live in the homes they own.  Real estate taxes are fully deductible for regular tax purposes, but fully non-deductible for Alternative Minimum Tax (AMT) purposes.  Similarly, mortgage interest is fully deductible up to $1.1 million of mortgage debt on the combination of a principle residence and one other qualified residence, such as a second home or boat.  Taxpayers who use a portion of their homes for business purposes, can reap additional tax benefits from such arrangements.

 

Adding dependents will create personal exemptions, which should reduce taxes until an individual or couple’s income reaches the point where such exemptions get phased out or are completely eliminated for alternative minimum tax “AMT” purposes.  Parents may also take advantage of child tax credits and additional credits available when a child is adopted. Other tax benefits may be garnered when parents or grandparents establish and begin funding 529 college savings plans for offspring.

 

Failing to address these life events until after year-end presents a missed tax-planning opportunity.  With advance notice, advisors and accountants can prepare projections of resulting tax liabilities and avoid surprises come April 15.

 

About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director with the Taxation and Financial Services practice of Berkowitz Pollack Brant Advisors and Accountants, where he provides tax and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached in the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at info@bpbcpa.com.

 

 

Take Tax Planning Off Auto-Pilot, Align with Life Events by Jeff Mutnik, CPA/PFS

Posted on August 10, 2015 by Jeffrey Mutnik

Many people put their income tax responsibilities on cruise control, taking a “same as last year” approach to their April 15 filing requirements. However, taking one’s eye off the road and ignoring how life events can change one’s tax position can result in lost opportunities.

 

Marriages, births, adoptions, death, divorce and buying or selling a home come with significant tax consequences – both positive and negative – that require advance planning and budgeting to prepare returns and meet one’s resulting tax liabilities.

 

Getting married creates multiple levels of tax complexity that will vary depending on whether both spouses work or have existing portfolio assets.  Couples must consider whether it is less costly to file their taxes jointly or married filing separately and if there will be any gains on the sale of assets, such as one spouse’s primary residence, before or during the marriage.

 

The American dream of home ownership may provide tax benefits for individuals who live in the homes they own.  Real estate taxes are fully deductible for regular tax purposes, but fully non-deductible for Alternative Minimum Tax (AMT) purposes.  Similarly, mortgage interest is fully deductible up to $1.1 million of mortgage debt on the combination of a principle residence and one other qualified residence, such as a second home or boat.  Taxpayers who use a portion of their homes for business purposes, can reap additional tax benefits from such arrangements.

 

Adding dependents will create personal exemptions, which should reduce taxes until an individual or couple’s income reaches the point where such exemptions get phased out or are completely eliminated for alternative minimum tax “AMT” purposes.  Parents may also take advantage of child tax credits and additional credits available when a child is adopted. Other tax benefits may be garnered when parents or grandparents establish and begin funding 529 college savings plans for offspring.

 

Failing to address these life events until after year-end presents a missed tax-planning opportunity.  With advance notice, advisors and accountants can prepare projections of resulting tax liabilities and avoid surprises come April 15.

 

About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director with the Taxation and Financial Services practice of Berkowitz Pollack Brant Advisors and Accountants, where he provides tax and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached in the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at info@bpbcpa.com.

 

 

 

IRS Releases Health Savings Accounts Limits for 2016 by Nancy M. Valdes, CPA

Posted on August 07, 2015 by

In an effort to make health care more affordable, a growing number of businesses with high-deductible health plans are offering Health Savings Accounts (HSAs) to help employees save money to pay for out-of-pocket medical expenses. With an HSA, contributions are made with pre-tax dollars through an employee’s payroll and are deducted from one’s gross income, while withdrawals made for qualifying medical expenses are excluded from federal taxes.

For 2015, the maximum allowable contribution to an HSA is $3,350 for individuals or $6,650 for a family plan. For 2016, the limit for individuals remains at $3,350, while family coverage increases to $6,750. To qualify as a high-deductible health plan in 2016, annual deductibles may be no less than $1,300 for individuals or $2,600 for a family. Additionally, annual out-of-pocket expenses may not exceed $6,550 for self-coverage or $13,100 for family coverage.

The advisors and accountants with Berkowitz Pollack Brant work extensively with employers and employees to structure and manage a range of tax-advantaged benefit plans.

About the Author: Nancy M. Valdes, CPA, is a senior tax manager in Berkowitz Pollack Brant’s Tax Services practice.  She can be reached at the Miami CPA firms offices at (305) 379-7000 or via email at info@bpbcpa.com.

What Individuals and Employers Need to Know about Same-Sex Marriage Ruling by Edward N. Cooper, CPA

Posted on August 06, 2015 by Edward Cooper

The recent Supreme Court ruling legalizing same-sex marriage brings with it far-reaching economic implications to lesbian, gay, bisexual and transgender (LGBT) couples and the businesses that employ them.

In the wake of the Court’s decision, all 50 states and the District of Columbia must now recognize same-sex marriages and provide to same-sex couples the same rights and privileges they provide to marriages between opposite-sex couples. This presents a sea of new opportunities and challenges for same-sex couples blending their lives and finances as well as the businesses that employ them.

Tax and Financial Benefits to Same-Sex Couples

Bringing the rights of LGBT couples in line with those granted to heterosexual couples simplifies a range of tax and financial-planning opportunities, including healthcare, retirement and death benefits. For example, married LGBT couples in all states may now claim spousal benefits for health insurance coverage and Social Security survivor benefits. Similarly, LGBT couples may name their spouses as next of kin and beneficiaries of individual retirement accounts and pass other property onto surviving spouses free of estate taxes. The same exemption will apply to same-sex spouses who may now make unlimited gifts to each other without incurring tax liabilities.

Also on the tax front, since the Court’s 2013 landmark decision in U.S. v. Windsor, same-sex couples married in jurisdictions that sanctioned their marriages have been recognized as legally married on the federal level and, therefore, permitted to file joint federal tax returns. However, because their unions were not recognized in every state, many couples were forced to file separate, individual returns on the state level, often resulting in additional costs of time and money in preparation. With state recognition of same-sex marriage, these couples may now file both federal and state tax returns jointly, when it makes financial sense, regardless of the state in which they were married or currently reside. Moreover, legal recognition of LGBT marriages on the state level means similar recognition of divorce among same-sex couples, which could include requirements of spousal alimony and child support.

With these provisions, LGBT couples should take the time to meet with legal and financial counsel to assess the financial dynamics that their unions will create. In most instances, it will mean that couples will need to review and update wills, estate plans, retirement accounts and insurance policies to take advantage of the benefits now afforded to them and prepare for the resulting tax implications. For example, legal recognition of these marriages may result in increased income and, subsequently, increased taxes, for which advanced planning will help couples minimize tax liabilities. Similarly, the issue of pre-nuptial agreements should become a consideration to protect both parties in case of divorce.

Considerations for Employers

Up until this point, businesses have been navigating through a maze of conflicting federal and state guidelines concerning benefits for LGBT couples. Some employers offered to same-sex couples who could not legally marry “domestic partnership” benefits, which they often extended to opposite couples who lived together. The question now will be whether or not these employers will continue to offer domestic partnership programs or eliminate those benefits all together and instead require same-sex couples to legally wed to enjoy spousal benefits. With LGBT couples’ legal right to marry, employers will have no other choice but to extend spousal benefits to same-sex couples or risk exposure to discrimination lawsuits. Similarly, if employers continue to offer domestic partnership benefits, they will need to consider extending them to all employees or open themselves up to claims of reverse discrimination.

While the June 2015 Supreme Court decision did not specifically address employee benefits it did redefine marriage and domestic partnerships among same-sex couples. As a result, employers will need to begin recognizing and providing benefits to homosexual and heterosexual employees in the same manner.

The LGBT Business and Families practice of Berkowitz Pollack Brant works individuals and same-sex domestic partnerships and married couples to navigate complex tax issues related to financial planning, tax compliance and planning and business ownership in a challenging and changing environment.

About the Author: Edward N. Cooper, CPA, is a director of Tax Services with Berkowitz Pollack Brant where he provides business and tax consulting services to real estate entities, multi-national companies, investment funds and high-net-worth individuals. He can be reached can be reached in the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at info@bpbcpa.com.

 

Can I Take an Early Withdrawal from my Retirement Account? by Lee F. Hediger

Posted on August 04, 2015 by Richard Berkowitz, JD, CPA

Maxing out annual tax-deferred contributions to a 401(k), IRA or other retirement savings account helps to ensure financial independence during one’s golden years. However, there are times when investors must tap into those reserves to pay for expenses prior to their retirement. In these situations, when account owners are younger than 59 ½, they are not only liable for federal and state taxes on the early withdrawals, they are also subject to a 10 percent penalty on the taxable portion of the early distribution, which excludes their costs to participate in the plan. However, investors may escape this penalty when their distributions meet the following requirements:

  • Made to a beneficiary or estate upon the death of the account owner
  • Made to an account owner who is permanently disabled
  • Made to cover unreimbursed medical expenses that exceed 10 percent of account owner’s adjusted gross income, or 7.5 percent if the taxpayer or his/her spouse was born before January 2, 1950
  • Made to pay for medical insurance for an account owner who has been unemployed for more than 12 weeks
  • Made to pay for qualified education expenses, such as college tuition, for an account owner, spouse, child or grandchild
  • Made to an account owner who retires, quits or loses his or her job at age 55 or later
  • Distributions of $10,000 to single account owners or $20,000 to married couples making a first-time home purchase

The rules regarding retirement plan distributions are nuanced and complex. Decisions regarding investing, early withdrawals and planned distributions should be made under the guidance of a qualified advisor. The financial planners with Provenance Wealth Advisors help individuals, family estates and business owners navigate the complexities related to retirement savings and implement strategies to maximize efficiencies and preserve wealth.

 

About the Author: Lee F. Hediger is a director and chief compliance officer with Provenance Wealth Advisors, an independent financial services firm affiliated with Berkowitz Pollack Brant Advisors and Accountants. He can be reached at 800-737-8804 or email info@provwealth.com.

 

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

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

 

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of PWA and not necessarily those of Raymond James. You should discuss any tax and legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

 

 

 

Florida LLCs Must be in Compliance with New Law and its Recent Revisions by Richard A. Berkowitz, JD, CPA

Posted on August 03, 2015 by Richard Berkowitz, JD, CPA

Time has run out for Florida’s limited liability companies (LLCs) to comply with the Florida Revised Limited Liability Act, which was first enacted in 2013. LLCs formed prior to Jan. 1, 2014, had a transitional year to get their businesses prepared to meet the provisions contained in the modernized law, which affects LLC members, managers, lenders and professional advisors. New LLCs formed after that date, including foreign LLCs, must comply with the new law as well as recent amendments adopted by the Florida legislature that became effective on July 1, 2015.

Central to the new law is an LLC’s operating agreement, which may override all waivable provisions contained in the act. In addition, the act contains an expanded number of non-waivable provisions that cannot be changed through the operating agreement. As a default statute, its rules can, in most cases, be superseded by an LLC’s operating agreement. As a result, LLCs should pay careful attention when drafting or amending their operating agreements to properly detail the way in which their entity is structured, managed and governed, as well as the members’ individual rights and responsibilities and the duties and responsibilities due to each other. Specific items to consider include:

Membership and Management Structure. The new law eliminates the term “managing member” and requires the LLC’s membership agreement to state when the company is “manager-managed.”  Otherwise, it will be deemed to be member-managed.   A “manager-managed” LLC elects one or more managers [LANGUAGE REMOVED] to make decisions on the company’s behalf. A manager may be a member, which now may include a non-economic member, or a third party.  The act defines a “non-economic member” as a member who does not contribute capital or have an economic stake in the LLC.

Member Liability. Under the new law, members and managers may be personally responsible to third parties who suffer losses when relying on inaccurate organizational articles filed by the LLCs with the state. To reduce the risk of exposing all of its members to this liability, the LLC may identify in its governing documents the member(s) responsible for filings with the state, take the necessary steps to confirm information contained in its filings and correct inaccuracies as quickly as possible. However, according to the statute, “To the extent that the operating agreement of a member-managed limited liability company expressly relieves a member of responsibility for maintaining the accuracy of information contained in records delivered on behalf of the company to the department for filing and imposes that responsibility on one or more other members, the liability…applies to those other members and not to the member that the operating agreement relieves of the responsibility…An individual who signs a record authorized or required to be filed under this chapter affirms under penalty of perjury that the information stated in the record is accurate.” Furthermore, Section 605.0105(4) provides that the “operating agreement may relieve a member (in a member-managed LLC) from any other responsibility that the member would otherwise have under the statute, as well as the duties corresponding to that responsibility, as long as at least one other member has expressly been delegated that responsibility. However, this exoneration cannot apply in cases involving bad faith, willful or intentional misconduct, or a knowing violation of law.”

Fiduciary Duties. Effective July 1, 2015, the fiduciary duties of LLC managers and members are no longer limited. Under the amendments adopted in 2015, the fiduciary duties of LLC members and managers now “include,” but are “not limited to, “the duty of loyalty” to account to the LLC and hold “as trustee for it any property, profit, or benefit derived by the manager or members.” In addition, the “duty of care” now requires managers and members to refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct or any unlawful act on behalf of the LLC. However, the law does allow members of the LLC to detail in the operating agreement their ability to opt out, limit or expand their fiduciary duties to each other.

Dissociation. Included in the 2015 amendments to the Revised LLC Act is the removal of a non-waivable provision that prohibits an LLC’s operating agreement from varying the power of a member to dissociate from the LLC at any time. Therefore, LLC members may not withdraw from the entity via “express will,” unless such a withdrawal is expressly detailed in the operating agreement.

Voting Rights. A member’s actions, when taken without a meeting, must be approved by members with the minimum number of votes necessary to take action in a meeting. In addition, the amendment adopted in 2015 defines LLC members with a “majority interest” voting right as those members who “hold more than 50 percent of the then-current percentage of profits or other interest in the LLC owned by all members” and not just those members with the right to vote. More specifically, the default provision requires each member’s vote to be proportionate to his or her percentage of ownership in the LLC’s profits.

Appraisal Rights. In addition to the appraisal rights that members have upon the consummation of a merger or conversion of voting rights, the new law provides six additional events that trigger such appraisal rights, including amendments to the LLC’s governing document that seek to modify or eliminate a member’s voting rights. Under the 2015 amendments, appraisal rights become the sole and exclusive remedy in most transactions, including interested party transactions.

Statement of Authority. LLCs may protect themselves by filing a statement of authority that publicly identifies which of its members have or do not have authority to take action on the LLC’s behalf.

Conflict of Interest Transactions. The new law provides standards by which an LLC may reasonably void a transaction when it is not deemed “fair” to the entity and its members at the time of authorization by comparing it to a similar transaction conducted at an arm’s-length. Further, the law specifies which party has the burden of proof in proving such lack of fairness.

LLC members and managers should become familiar with the provisions of Florida’s Revised LLC Act, including an expanded list of non-waivable requirements and recent amendments to the law, and understand how such modifications in the law will have far reaching effects on their corporate, personal and estate and trust tax liabilities. For some, the new LLC law will require additional revisions to existing operating agreements and organizational documents. In fact, if there are inconsistencies between an LLC’s operating agreement and its article of organization relating to its membership and management structures, the operating agreement will prevail. Consultation with legal and financial counsel is recommended to evaluate an LLC’s exiting operating agreement and determine what changes are necessary to protect the entity and its members.

About the Author: Richard A. Berkowitz, JD, CPA, is founder and CEO of Berkowitz Pollack Brant Advisors and Accountants, where he works with individuals, families and entrepreneurs to develop comprehensive income, estate and business plans that meet goals and improve tax efficiencies. He can be reached at the CPA firm’s Miami office at 305-379-7000 or via email at info@bpbcpa.com.

 

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