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Monthly Archives: September 2015

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

Posted on September 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.

 

 

 

3 Savings Strategies for Recent College Grads by Stefan Pastor

Posted on September 25, 2015 by Richard Berkowitz, JD, CPA

As recent college graduates prepare to embark on their professional careers, there are several strategies they should consider to establish a savings plan to prepare for a sound financial future.

Employer-Sponsored Savings

While retirement may seem like a long way off for a recent college grad, initial entry into the workforce is an ideal time to take advantage of compounding interest and the fact that the earlier one starts saving, the more gains he or she will realize in the future. Even with a modest first-year salary, recent grads should not forgo the opportunity and ease with which they may begin savings through an employer-sponsored 401(k) plan. Through these plans, workers elect to defer a portion of their salaries automatically toward retirement savings. Contributions (limited to $18,000 in 2015) are made with pre-tax dollars and are often supplemented with an employer “match,” which can be likened to free money. For example, a worker that contributes 3 percent of his or her salary to a 401(k) and receives a 3 percent company match will ultimate yield 6 percent of savings for the future.

 

Individual Retirement Savings

When an employer does not offer a retirement-savings plan, college grads may consider establishing, on their own, an Individual Retirement Account (IRA) that enables them to make pre-tax contributions, up to $5,500 in 2015, and defer taxes on earnings, including income and gains. Withdrawals at retirement would be taxed as ordinary income. Alternatively, young investors may instead consider contributing to a Roth IRA, in which contributions are made after taxes, but withdrawals may be taken free of taxes when the account owner is 59.5 or older and when the funds were contributed at least five years prior.

 

For many recent graduates, consideration should be given to combine the benefits of a 401(k) and IRA to maximize their savings.

 

Healthcare Savings

To help individuals manage the rising costs of health care, many employers offer their workers access to Flexible Spending Accounts (FSAs). Using pre-tax dollars, FSA enable employees to save money (up to $2,500 in 2015) to pay for certain out-of-pocket health care costs not covered by health insurance, including copayments and deductibles. Ultimately, FSAs enable workers to reduce their taxable income while receiving reimbursement for eligible health care-related expenses. The one caveat is that any money unused in an FSA at the end of the year may become forfeited. For this reason, it is important to budget appropriately at the start of each year.

 

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., Members 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.

 

Real Estate Developers and Construction Firms May Be Missing Out on Section 199 Deduction Opportunities, by Karen A. Lake, CPA

Posted on September 24, 2015 by Karen Lake

While the Section 199 domestic manufacturing deduction has been in effect since 2005, few real estate developers and construction contractors understand if they qualify for the deduction and how they may realize the significant tax benefits associated with it.

 

Under the Internal Revenue Code, taxpayers actively involved in the trade or business of construction, architectural design and engineering of real property in the U.S. may offset income with a fully phased in tax deduction of 9 percent on profits from qualified activities.  Determining what activities qualify for the deduction can be both challenging and time consuming.  However, taking the time to understand the components that qualify for Section 199 deductions and analyzing and substantiating the qualifying costs could prove to be a valuable effort.

 

Do You Qualify as a Construction Business?

To qualify for a Section 199 deduction, contractors must meet the following requirements:

  • Be engaged in “construction”,
  • Be involved in the construction of “real property” in the U.S.,
  • Be actively engaged in a construction trade or business on a regular and ongoing basis,
  • Have gross receipts that derive from construction activities

More specifically, the IRS defines construction as “activities performed to erect or substantially renovate real property in the U.S.”  This may include renovations to major components or structural parts of real property that material increase the property’s value, prolongs its use or converts it for a completely different use. It may also include some managerial functions conducted by general contractors in the normal course of business.

 

Real property refers to both residential and commercial buildings as well as the structural components and permanent structures that will eventually become a part of the total project.  This may include parking lots, club houses, tennis courts and swimming pools, as well as the roads, sidewalks, and water and sewer lines that support the property’s infrastructure.

 

To meet the requirements of active engagement in a construction trade or business, taxpayers must be involved with the regular and ongoing sale of constructed property to an unrelated purchaser within five years of project completion.  However, to qualify for the Section 199 deduction, taxpayers need not be licensed general contractors nor must the work they perform on a particular project be their only source of income.

 

Do You Have Qualifying Domestic Production Gross Receipts?

The definition of construction activities can become muddled when considering that it does not always cover specific services performed by anyone other than the builder.  For example, excluded from Domestic Production Gross Receipts (DPGR) are peripheral services, such as hauling debris and delivering materials, unless the taxpayer performs those services in connection with the construction project.  The same holds true for general improvements, such as demolition, excavation, landscaping and painting, unless the taxpayer performs these services in conjunction with a building or renovation project.

 

Determining what income derived from construction qualifies for Section 199 deductions requires careful review and itemization of a taxpayer’s gross receipts.  Income from gross proceeds from property sales and contract services as well as a contractor’s mark-up on materials used in the project and a permanent part of the finished project may be used to calculate the deduction.   Alternatively, income from non-construction activities, such as the value of the land and gross proceeds from the sale of re-acquired property that the taxpayer originally constructed, is excluded from the deduction calculation.  Furthermore, general contractors and subcontractors are often surprised to learn that they may take the Section 199 deduction on the same project when the subcontractor’s gross receipts match the general contractor’s costs.

 

Planning Opportunities

Before applying, calculating and substantiating Section 199 deductions, taxpayers must recognize and analyze a range of additional planning opportunities that can affect a reduction in their tax rates. For example, the amount of the deduction in a tax year may not exceed the taxpayer’s taxable income.  Furthermore, because the deduction is limited to 50 percent of W-2 wages paid in the fiscal year, a sole-proprietor with no employees may not claim the domestic production/manufacturing deduction.

 

Similarly, many construction-related entities have complex structures that can affect the application and amount of Section 199 deductions.  For example, pass-through entities may apply the deduction only at the partner/shareholder level, unlike large partnerships and joint ventures, which will have a completely different deduction calculation.

 

Applying the Section 199 deduction is not a simple endeavor.  Yet, it is often worth the effort, especially when considering it typically saves qualifying U.S. businesses in excess of $110 billion over 10 years, according to the U.S. Chamber of Commerce.  Partnering with an accounting firm experienced in real estate development matters can ease the burden and ultimately help builders and contractors realize the untapped tax saving unique to their industry.

 

About the Author: Karen A. Lake, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant and a specialist in Federal and State and Local Tax (SALT) credits and incentives. She can be reached in the Miami CPA firm’s Miami office at 305-379-7000 or via email at info@bpbcpa.com.

 

 

The Role of Normalization Adjustments in Business Valuation by Sharon Foote, ASA, CFE

Posted on September 20, 2015 by Scott Bouchner

 

The income approach is one of the most commonly used and generally accepted methods to determine the value of a business interest. This approach quantifies the net present value of future benefits associated with ownership of a business interest which are then discounted or capitalized at a rate appropriate for the associated risk. The capitalization of cash flows method and the discounted cash flow method are included in the income approach. In applying a market approach, market multiples obtained from an analysis of guideline companies or market transactions are often applied to revenue and earnings data to determine value.

An important step in using the income approach or the market approach is to go through the process of normalizing the financial statements. Normalized financial statements are defined in the International Glossary of Business Valuation Terms as “financial statements adjusted for non-operating assets and liabilities and/or for nonrecurring, noneconomic, or other unusual items to eliminate anomalies and/or facilitate comparison”. The goal of the normalization process is to estimate future expected cash flow that a potential buyer can reasonably expect to receive in return for his (or her) investment and to present information that is on a basis similar to that of other companies in its peer group and in benchmark studies used for comparison and analysis.

There are various categories of normalization adjustments that can be made, which may be applicable to a particular set of facts and circumstances. The adjustments that can be made to the income statement generally fall into the following categories:

  1. Ownership Characteristics (controlling vs. non-controlling interest),
  2. GAAP Departures (Generally Accepted Accounting Principles),
  3. Extraordinary or Nonrecurring Income or Expenses, and/or
  4. Income and Expenses related to Non-operating Assets or Liabilities.

A shareholder owning a controlling interest in a business entity can make control adjustments, whereas a non-controlling (or minority) shareholder would not be able to force those changes. Control adjustments that could be made to reflect the cash flow available to a potential buyer include the following, for example:

  • Excess (or deficient) officers’ compensation, benefits (such as health insurance and retirement contributions) and perquisites (such as luxury cars, country club memberships, and the like),
  • Excess or below-market rent paid to shareholders or related entities,
  • Personal travel and entertainment of shareholders and management,
  • Excess intercompany fees and payments to a related entity with common ownership,
  • Changes in the capital structure of the entity.

GAAP departures are in the second category. The most common GAAP adjustment is for entities reporting their financial statements on a cash basis. GAAP requires accrual basis accounting; therefore, properly recording unrecorded assets and liabilities to the entity’s financial statements is needed.

The effect of extraordinary and nonrecurring items should also be removed from the income statement since they affect the valuator’s estimate of a normal level of future cash flows.   Some common examples of this type of normalization adjustment are:

  • Gains or losses on the sale of business assets,
  • Extraordinary one-time casualty expenses, e.g., a hurricane or other casualty (over the amount of any insurance recovery),
  • The costs of litigation expenses, payments or recoveries.

Adjustments for income and expenses related to non-operating assets and liabilities are also removed to obtain a normalized level of future cash flows.   For example, if a manufacturing company is holding a piece of vacant land as an investment, this would be a non-operating asset; the related real property tax would be a non-operating expense and should be removed from the income statement for normalization purposes. If there is a loan on that investment property, this would be a non-operating liability, and the related interest expense should be removed from the income statement as well.

Going through the normalization process will result in the valuator constructing a normalized income statement that will better reflect the true economic income of the subject business, allowing for a better comparison of the subject company’s financial performance to similar companies or its industry peer group. More importantly, this exercise will produce a level of future economic benefits that can be utilized in determining a reasonable value of the business interest.

Examining a company’s financial statements to determine the appropriate adjustments to be made is best left to the judgment of an experienced business valuation analyst after discussions with management.

About the author: Sharon Foote is a manager in the Forensics and Business Valuation practice in Berkowitz Pollack Brant’s Miami office. For more information, call (305) 379-5598 or email info@bpbcpa.com.

Facebook Allows Users to Keep their Legacies Alive After Death by Kenneth Strauss, CPA/PFS, CFP

Posted on September 18, 2015 by

In a technology-driven world, where communication and personal affairs are conducted online as often as offline, it is not uncommon for individuals to forget to include in their estate plans access to their digital assets, including email accounts and social media profiles. To help individuals manage or dispose of their online identities after death, Facebook allows its users to designate a “legacy contact” to look after their accounts and even download photos or post messages after their passing.

 

Designating a legacy contact is simple. Facebook users should log into their accounts and check their security settings. Here, they may select a friend, family member or personal representative to serve as their legacy contact or request that Facebook delete their accounts permanently after they pass away. In addition, users may opt to have their accounts “memorialized” and serve as a place for friends and family members to share their memories. Once they make a selection, account users should share their wishes with family members and friends as well as their estate-planning advisors.

 

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Estate plans must keep up with changing times, circumstances and new technologies. Providing family members and 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 physical and online affairs after death.

 

About the Author: Kenneth J. Strauss, CPA/PFS, CFP, is a director with the Taxation and Personal Financial Planning practice of Berkowitz Pollack Brant, where he works with entrepreneurs and multi-generational family businesses to develop tax-efficient estate, succession and financial plans.   He can be reached in the CPA firm’s Fort Lauderdale, Fla., office at (954) 712-7000 or via email info@bpbcpa.com.

 

 

Non-Profit Organizations Face Stricter Solicitation Rules in Florida by Adam Cohen, CPA

Posted on September 16, 2015 by Adam Cohen

Under Florida’s Charity Reform Law, passed in July 2014, the state’s non-profit organizations face increased scrutiny relating to their fundraising and financial-reporting practices. The law, which aims to root out deceptive and fraudulent charities, establishes a more stringent set of rules to protect against misuse of donor contributions.

 

To maintain compliance with the law, Florida non-profit organizations should review their policies and procedures to ensure they meet the following expanded financial and operational reporting requirements.

 

Conduct Independent Reviews and Audits of Financial Statements. Charitable organizations that receive more than $500,000 in donations during a year must submit reviewed or audited financial statements prepared by a CPA. Non-profits receiving more than $1 million annually must provide independently audited financial statements, and those spending less than 25 percent on program expenses must file additional financial details of revenue spending and relationships between board members and staff. According to the IRS, any charitable organization or sponsor may submit Form 990 in lieu of a financial statement, which must be prepared by a CPA when the non-profit receives more than $500,000 in annual contributions.

 

Submit Form 990 for Each Chapter or Branch. Parent organizations may continue to file consolidated financial statements for its multiple branches and chapter, however, each independent office must now file annually its own Form 990 and include donor contributions and payments received from their parent organizations.

 

Make Disclosure Requirements Available Online. Charities that accept donations online must include on their websites appropriate disclosures to help donors may make informed decisions before making contributions. For example, not-for-profit organizations must now include on their websites a toll-free number that donors may call to obtain registration numbers and other information about the entities.

 

Annually Certify Conflict of Interest Policies. Florida non-profits must have a conflict of interest policy regarding transactions between the organizations and other parties in which their directors, officers or trustees have a financial interest. The policy must be personally certified each year by the charities’ directors, officers and trustees.

 

Ban Solicitations from Individuals with Criminal Histories. Organizations may not permit officers, directors, trustees or employees with a criminal history to solicit contributions. This does not apply to volunteers or employees who are not involved in requests for and processing of donations. In addition, the law requires professional solicitors collecting sensitive financial information to provide the state with fingerprints for background checks and scripts used for solicitations of funds.

 

Meet New Reporting Requirements for Solicitations Relating to Disaster Relief. Charities established for disaster relief that receive $50,000 or more in contributions from solicitations and that have not been registered with the state for at least four consecutive years must file quarterly financial statements detailing how they allocate funding.

 

While the vast majority of Florida’s non-profits conduct themselves with the highest levels of integrity, these charities should take precautions to confirm they meet the expanded requirements for compliance.
About the Author: Adam Cohen, CPA, is an associate director in the Tax Services practice of Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via e-mail acohen@bpbcpa.com.

 

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

Posted on September 11, 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.

Health and Human Services Takes Aim at Physician Compensation by Whitney K. Schiffer, CPA

Posted on September 08, 2015 by Whitney Schiffer

The Office of the Inspector General for the Department of Health and Human Services (HHS) is warning physicians to take a closer look at their compensation agreements to ensure compliance with anti-kickback statutes. More specifically, HHS is on the lookout for physicians who enter into compensation arrangements, such as medical directorships with hospitals or other organizations, which reflect the potential for past or future patient referrals rather than the fair-market value of the services the physicians provide.

 

The alert comes on the heels of HHS’s settlement with a dozen individual physicians whose “questionable” compensation took into consideration the “volume and value of [the physicians’] referrals” and included payment from related entities to the physicians’ office staff. While HHS concedes that the organizations making the payments are liable for their actions, the deferral agency is putting the onus on physicians to ensure the terms and conditions of their medical directorships are structured and monitored appropriately to comply with anti-kickback laws. Failure to do so may result in personal liability, including risk of criminal, civil and administrative sanctions.

 

The advisors with Berkowitz Pollack Brant’s Audit practice work closely with doctors, physician groups, hospitals and other providers to ensure compliance with healthcare laws through proper managements of internal controls and reviews, compilations and audits of financial statements.

 

About the Author: Whitney K. Schiffer, CPA, is a director with the Audit and Attest Services practice of Berkowitz Pollack Brant, where she works with hospitals, health care providers, HMOs and third-party administrators. She can be reached in the firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

 

Is Your Business Ready for the New Model of Revenue Recognition? by Christopher Cichoski, CPA

Posted on September 02, 2015 by Christopher Cichoski

In May 2014, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) issued new revenue recognition guidance that will affect substantially all businesses, including those in the real estate, construction, software, telecommunication, manufacturing and distribution industries, as well as certain not-for-profit entities. Privately held companies must implement the guidance for annual reporting periods beginning after December 15, 2018, but they may adopt the new requirements as early as 2017.

 

While 2018 may seem like a far-off date, businesses would be well-served to begin assessing their current contract procedures now and establishing new systems and policies to ease the transition to the new revenue recognition standard in the not-so-distant future.

 

Why is there a New Standard for Recognizing Revenue?

The new guidance moves away from the traditional industry- and transaction-specific financial reporting requirements under U.S. Generally Accepted Accounting Principles (GAAP.) The new standard is more principles-based and requires enhanced financial statement disclosure, which will facilitate the comparability of financial results of business operations across all industries and capital markets.

 

What is included in the New Provisions?

Under the new standards, all businesses will be required to recognize revenue from contracts with customers using the same five-step model. However, based on the results of applying the five-step model, different businesses will account for revenue either at a particular point in time or over time using a percentage-of-completion method of performance measurement.

 

Step One: Identify the Contract

Under the new standard, a contract is defined as an agreement between two or more parties that creates specific, enforceable rights, as a matter of law. Furthermore, parties can be sure a contract exists when the agreement has commercial substance, when it identifies rights to goods and services and related payment terms, when entitled collection is “probable,” and when the parties approve the agreement and commit to their contractual obligations. An important point to consider is that subsequent modifications to a contract could result in the creation of a new contract, an addition to the existing contract, or both.

Step 2: Identify the Contract Performance Obligations

Performance obligations are contractual promises to deliver goods or services to a customer. A performance obligation may be distinct or it may be combined with other goods or services. Identifying if goods and services are “distinct” requires they meet the following criteria:

  1. The customer can benefit from the good or service, on its own or together with other resources that are readily available to it, and
  2. The promise to transfer the good or service is separately identifiable from other promises in the contract.

The new model of revenue recognition offers additional guidance to help businesses determine when goods and services are not distinct. More specifically, promised goods or services may be bundled or unbundled more frequently under the new guidance. As a result, businesses must carefully analyze the various goods and services they sell and how they relate to each other in meeting contract terms.

 

Step 3: Determine the Transaction Price

Transaction prices, or the amounts that businesses expect as payment in return for transferring goods or services to a customer, must include an assessment of the following components:

 

  1. Variable consideration and constraining estimates (including discounts, credits, price concessions, returns, or performance bonuses and penalties)
  2. Consideration payable to the customer
  3. The existence of a significant financing component
  4. Noncash consideration

 

These factors will weigh on the ultimate transaction price a business will estimate it will be entitled to receive and how and when it will recognize the resulting revenue on its financial statements.

 

Step 4: Allocate the Transaction Price to the Performance Obligations in the Contract

To allocate an appropriate transaction price to each performance obligation, a business must first determine at contract inception the stand-alone selling price of each distinct product and service it promises to deliver. These amounts may not be easily recognizable due to volume discounts or bundling. In these instances, businesses will need to develop new processes and procedures for estimating stand-alone selling prices of the goods and services to be delivered.

 

Step 5: Recognize Revenue When (or As) the Entity Satisfies a Performance Obligation

Businesses will recognize revenue either at a point in time or over the period in which it satisfies a performance obligation. Transfers that occur over time include those in which:

  • The customer simultaneously receives and consumes the benefits of the business’s performance, often as part of routine or recurring services
  • The business’s performance creates or enhances an asset that the customer controls, such as a product the business builds on the customer’s site
  • The business’s performance creates or customizes an asset that only the customer can use and has an enforceable right to payment for performance completed to date

 

In these situations, the business will recognize revenue over time using performance measurements that may include its output (i.e. units produced) or its input (i.e. hours of labor or costs incurred). Applying these methods of measurement for satisfaction of an obligation that occurs over time further requires business to identify the moment at which it transfers control, which may include the time at which the customer accepts the asset and takes significant risks and rewards of ownership or takes physical possession or legal title to it. Additionally, the point of time may occur when the business has a present right to payment for the asset.

Along with this guidance, special rules will apply when performance obligations involve the licensing of intellectual property.

 

In addition to this five-step model of revenue recognition, businesses should begin preparations to comply with enhanced disclosure requirements about customer contracts under the new standard. Businesses should begin to take the time to identify data gaps between existing practices and those required in the future, and making significant changes, as needed, to existing policies, processes and IT systems.

 

The advisors and accountants with Berkowitz Pollack Brant work with businesses across all industries to develop and implement strategies that meet ever-changing, often complex, financial reporting and disclosure requirements.

 

About the Author: Christopher Cichoski, CPA, is a senior manager of Audit and Attest Services with Berkowitz Pollack Brant, where he provides business consulting services and conducts reviews, compilations and audits for clients in the real estate and construction sectors. He can be reached in the Miami CPA firm’s office at (305) 379-7000 or via email at info@bpbcpa.com

 

Mark Your Calendars for New Tax Filing Deadlines and Extensions by Dustin Grizzle

Posted on September 01, 2015 by Dustin Grizzle

Taxpayers, including individuals, businesses and trusts, should make note of future changes to filing deadlines including in the recently Highway Funding Bill. In most cases, these changes are effective for tax years starting after December 31, 2015.

 

  • Partnerships and S Corporations that close their years on December 31 must now file returns by March 15; fiscal year entities must file by the 15th day of the third month following the end of their fiscal years. In addition, partnerships may now receive a filing extension of up to six months.
  • C Corporation returns are now due April 15 for businesses that close their years on December 31. C Corporations with fiscal years ending on June 30 will not have to meet the new deadline until the 2025 filing season.
  • Taxpayers with financial interest in or signature authority over a foreign financial account, including bank account, brokerage account, mutual fund or trust exceeding certain thresholds, must file FinCen Form 114, Report of Foreign Bank and Financial Accounts (FBAR) by April 15 with an allowable six-month extension.
  • Taxpayers who receive gifts of money or other property from foreign sources must file an informational Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, by April 15 with an allowable six-month extension.

About the Author: Dustin Grizzle is a senior manager in Berkowitz Pollack Brant’s Tax Services practice, where he provides tax planning and compliance services to businesses and high-net-worth individuals. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.

 

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