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Monthly Archives: October 2015

Berkowitz Pollack Brant Named One of 50 Best of the Best Firms in US by Inside Public Accounting

Posted on October 30, 2015 by Anya Stasenko

MIAMI- Oct. 30, 2015 – Berkowitz Pollack Brant Advisors and Accountants has been named as one of the 50 top accounting firms in the United States. In addition the firm was recognized as one of the fastest-growing accounting firms in the country.

 

Inside Public Accounting creates the annual Best of the Best list based on a range of factors, including revenue growth, client growth and retention, leadership and management, diversity of practice areas and opportunities for advancement.

 

Berkowitz Pollack Brant has appeared on the list 17 times, one of only five firms in the United States to do so.

 

“We are thrilled to be recognized by Inside Public Accounting again this year,” said Richard A. Berkowitz, CEO Berkowitz Pollack Brant. “We focus our efforts on providing a comprehensive approach to income, estate, financial and business planning. We pride ourselves on developing the next generation of leadership and creating an environment for people to build fulfilling careers. We are proud to be recognized for these efforts.”

 

Berkowitz Pollack Brant and its affiliates Provenance Wealth Advisors and BayBridge Real Estate Group have nearly 200 employees in three offices in South Florida. The firm offers a wide range of business consulting, accounting, tax planning and advisory services for US and international companies, real estate entities and closely held businesses in a broad array of industries.

 

About Berkowitz Pollack Brant Advisors and Accountants

For more than 35 years the advisors and accountants of Berkowitz Pollack Brant have solved problems, provided knowledge and helped clients achieve their goals. The firm and its affiliates Provenance Wealth Advisors and BayBridge Real Estate Group have offices in Miami, Ft. Lauderdale and Boca Raton, Florida.

 

Berkowitz Pollack Brant has been named one of the top 100 firms in the U.S. by both Accounting Today and INSIDE Public Accounting. One of the largest firms in South Florida, it is comprised of talented and resourceful professionals who provide consulting services with an entrepreneurial focus. Specialty areas include domestic and international tax planning and compliance, corporate and commercial audits, forensics and litigation support, business valuation, and wealth management and preservation.

 

Understanding Proposed Changes to Not-For-Profit Financial Reporting by Megan Cavasini, CPA

Posted on October 29, 2015 by

Change is brewing for not-for-profits organizations and the way in which they present their financial information. On April 22, the Financial Accounting Standards Board (FASB) issued a draft of proposed changes to not-for-profit (NFP) reporting guidelines in an effort to improve the way NFPs tell their financial story to constituents, such as donors and grantors, who rely on an organization’s financial statements to make informed decisions. While the FASB sifts through the comments on the proposed accounting standards changes, not-for-profit entities should become aware of the new provisions and begin assessing how they will implement them when they go into effect.

Change Net Asset Classifications

In an effort to simplify and more clearly present a not-for-profit’s statement of financial position relating to its liquidity, performance and equity, the FASB proposes to replace the current classes of net assets (unrestricted, temporarily unrestricted and permanently restricted) with two new classes: Net Assets with Donor Restrictions and Net Assets without Donor Restrictions. With these new classifications, NFPs would also need to disclose on the face of financial statements the amount of funds they received with donor stipulations and also include separate footnote disclosures detailing any funds received with board-imposed restrictions as well as their plans to allocate those assets in the future. For example, when a donor specifies that his or her gift be used at a particular time or for a particular program, the NFP will need to reflect those limitations for the period as net assets with donor restrictions. However, the NFP would no longer have to worry about the classifications of temporary or permanent restrictions pertaining to those net assets.

Reclassify Cash Flow Activities

Under the proposed guidelines, not-for-profits would no longer have an option to use the indirect method for reporting on the statement of cash flow. Rather, NFPs would need to rely solely on the direct method of reporting. The proposed changes also suggest NFPs re-classify certain operating, financing and investing activities to better align with their activities statements.

Cash Flow Resulting From… Report As… From…
·        Purchases of ling-lived assets

·        Contributions restricted to acquired long-lived assets

·        Sales of long-lived assets

Operating Investing
·        Payments of interest on borrowing

·        Cash-management activities

Financing Operating
·        Receipts of interest and dividends on loans and investments other than those made for programmatic purposes Investing Operating

 

Include New and Enhanced Disclosures

The FASB proposes that not-for-profits supplement financial statements with enhanced disclosures to provide users of this information with a better assessment of the NFPs cash flow and liquidity. More specifically, NFPs would need to disclose governing designations, appropriations and other transfers that limit or lift restrictions on the use of resources required to maintain adequate cash flow and continue operating activities. In addition, NFPs would have to disclose the liquidity of the organization and specify how quickly they settle financial assets for cash and pay their liabilities. Doing so would require NFPs to define the time horizons they use to manage liquidity and report both the quantitative and qualitative nature of their activities, including:

Quantitative Information

  • The total amount of financial assets
  • Amounts that are not available to meet cash needs within the specified time horizon because of external factors and internal actions of its board
  • The total amount of financial liabilities that are due within the specified time horizon

 

Qualitative Information

  • The strategy for addressing risks that may affect liquidity, such as lines of credit
  • The policy for establishing liquidity reserves
  • The basis for determining the time horizon selected to manage liquidity

 

Another area that NFPs will need to address in the financial statement footnotes are underwater endowment funds, which are donor-restricted endowments for which the fair value is less than the original gift amount or the amount required to be maintained by the donor or by law. In addition to disclosing the aggregated original gift amounts or amounts required to be maintained by the donor or by law and the aggregate fair value of the underwater endowment funds and amount of the deficiencies, NFPs would need to report their governing boards’ policies or decisions to spend or not spend from underwater funds. Moreover, NFPs would have to reclassify net assets without donor restrictions to net assets with donor restrictions to account for shortfalls between the amount required to be maintained and the fair value.

Change is a natural progression that requires advanced planning to more easily adapt and benefit from the modifications. Not-for-profit entities should meet with tax and audit professionals now to understand how the FASB’s proposed changes would affect their organizations and how they may begin taking steps to prepare for change.

About the Author: Megan Cavasini, CPA, is a senior manager with Berkowitz Pollack Brant’s Audit and Attest practice, where she works with not-for-profit organizations and professional services firms. She can be reached in the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.

Staying Safe in the Cloud by Joe Gutierrez, Director of Information Technology

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

Businesses large and small are increasingly “moving to the cloud” to keep their data easily accessible while staying ahead of changing technologies. To be sure, this corporate refrain is nothing new, but many businesses making the transition lack a clear understanding about the risks and rewards they should consider before making the leap to the cloud.

What is the Cloud?

The cloud is a network of servers that allow users to store and access data and programs via the Internet rather than on a computer hard drive or servers physically located onsite in an office or home. The most recognizable cloud services are Apple iCloud, Google Drive and Microsoft 365, which allow users to store, backup and synchronize large amounts of data across all of their devices with the click of a button and without a significant investment in hardware to host their own data centers. Users pay for what they need, and the service providers take care of all matters relating to cloud administration, maintenance and updates.

Protecting Data from Dangers in and around the Cloud

Along with all of the conveniences of cloud computing, including improved cost efficiency, capacity, accessibility, back up and data recovery, come a range of challenges. Foremost, the cloud environment lacks a comprehensive set of security standards, leaving businesses with the difficult decisions to entrust their sensitive data to third-party providers that may or may not have adequate controls in place. To minimize their exposure to risks, businesses should first assess their own needs, compliance requirements and security protocols before taking steps to thoroughly investigate cloud providers. Key issues to consider include:

Data Location and Physical Security. Where is the data stored geographically? Is the data replicated outside the country? Does the provider have a backup plan in case of disaster or interruption in services?

User Access. How does the cloud provider manage user access? What redundant connectivity protocols are in place to ensure cloud services can continue operations in the event of an outage or disruption to the cloud infrastructure?

Digital Security. How and how often does the provider perform security testing? What encryption policies does the provider use to protect data, both in motion and at rest? How are encryption keys managed? What controls are in place to ensure customer data is hidden from a providers insiders and from its other customers?

Incidence Management. Does the provider maintain logs of security attacks? What systems are in place to respond to security breaches and mitigate damages?

Compliance. Does the provider have experience meeting the unique data security and regulatory provisions of a particular business? Has the provider earned certification or completed a third-party audit of its claims? Do customers have a right to audit?

The Contract. Never sign an agreement before reading the contract terms, especially when considering that providers can limit their liability for any unauthorized access or use, corruption or loss of customer data. Moreover, businesses must vigilantly monitor their selected providers’ efforts to meet their service level agreements

The decision to move to the cloud should not be made without careful assessment of the multitude of providers nor without consideration for a business’s own needs and risks. Malicious attacks are a real danger to data security. However, many of the most recent headline-making incidences did not involve the cloud but rather compromises made on the user level. Therefore, businesses must employ strong security measures on the enterprise-level, including adoption of rigorous policies to educate all users within an organization and those that have access to its mission critical data.

About the Author: Joe Gutierrez is the IT director of Berkowitz Pollack Brant Advisors and Accountants and a noted speaker on issues relating data management and security within professional service firms. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

Planning for Babies and Taxes by Joanie B. Stein, CPA

Posted on October 23, 2015 by Joanie Stein

A baby brings new and exciting opportunities to growing families. To be sure, raising a child requires significant expenses.  However, the IRS offers a range of tax benefits to help parents offset some of these costs.

 

Infertility Treatments.  Fifteen states, including New York, New Jersey and California, have laws requiring insurance plans to cover specific infertility treatments for its residents.  Couples residing in other states should consider speaking with their employers about the availability of medical flexible spending accounts (FSAs) that allow individuals to contribute up to $2,550 of pre-tax money from their paychecks per year to pay for medical expenses, including fertility treatments.  In most cases, individuals will need to use the money in their FSA during the plan year.

 

Adoption Credit.  Taxpayers who adopt a child under the age of 18 in 2015 may qualify for a $13,400 tax credit, which begins to phases out when modified adjusted gross income exceeds $201,010.

 

Dependent Deduction. Having a dependent child under the age of 19 (or 24 when the child is a full-time student) provides taxpayers with a personal exemption of $4,000 for each qualifying dependent in 2015.  However, the exemption is subject to income limits, specifically, it begins to phase out once adjusted gross income exceeds $258,250 for single taxpayers and $309,900 for married couples filing jointly.  It phases out completely at $380,750 for single taxpayers and $432,400 for married couples filing jointly.

 

Child Tax Credit. A credit of $1,000 per child under age 17 is available to taxpayers whose modified adjusted gross income is below $75,000 for single head of household or $110,000 for married couples filing jointly.

 

Dependent Care Credit. Working parents who pay for someone else to care for a child under the age of 13 may claim a credit equal to a percentage of expenses up to $3,000, or up to $6,000 for parents with two or more children. The percentage applied depends on the parent’s adjusted gross income. The credit also be applied toward expenses for day care and summer camp.

 

Self-employed health insurance deduction.  Self-employed parents may be able to deduct the premiums they paid to provide health insurance for their dependent children under the age of 27.

 

Kiddie Tax.  For 2015, children with unearned net income totaling less than $2,000 can avoid paying taxes on that income at their parent(s) higher tax rate.  Moreover, parent(s) whose child has unearned of less than $10,000, may elect to include that income one their tax return rather than filing a separate return for the child.

 

Prepare Now for Future College Expenses.  As the costs of higher education continue to skyrocket, new parents should consider investing in a savings program, such as a state-sponsored 529 plan, that allows contributions to grow tax-deferred.  By the time the child is ready to enroll in college, he or she may take distributions tax-free to pay for qualifying education expenses, such as college tuition, room and board, books and computers.  Additionally, families residing in Florida should consider enrolling in the state’s Prepaid College Plan, which allows them to lock in today’s costs for a two- or four-year education at a state university.   Currently, the cost of a four-year, in-state prepaid plan is $27,379.

 

Having a child is a life-transforming event that requires advanced planning and consideration of the many new responsibilities parents will confront when bringing up baby.

 

About the Author: Joanie B. Stein, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she provides individuals and businesses with sound estate and tax planning counsel. She can be reached in the CPA firm’s Miami office at 305-379-7000 or at info@bpbcpa.com.

 

Market Turbulence Signals Opportunity to Revisit Financial Plan by Todd Moll, CFP, CFA

Posted on October 21, 2015 by Richard Berkowitz, JD, CPA

For many investors, the recent volatility of the global equity markets can undoubtedly cause some anxiety. However, depending on an investor’s financial needs, goals and time horizons, doing nothing during periodic market corrections may be the best strategy. Rather than surrendering to the stress and making hasty decisions in response to the here and now, investors should use this time as an opportunity to meet with their advisors, ask questions and, if needed, make adjustments to existing plans.

Here are four questions that should be top of mind when speaking with a financial advisor:

  1. Does the current volatility materially affect the progress towards my goals?
  2. Does the current volatility present a buying opportunity?
  3. What, if any, market conditions would prompt a change to the asset mix in my portfolio?
  4. Are there particular investment options you would turn to during periods of turmoil or market uncertainty?

The future cannot be predicted with 100 percent accuracy. However, by approaching the unknown with a carefully crafted plan, backed by knowledge and guided by the experience of professional advisors, investors can be better prepared to ride out market swings and even find opportunities in market downturns.

About the author: Todd A. Moll, CFP®, CFA, is a director and chief investment officer with Provenance Wealth Advisor, an independent financial services firm affiliated with Berkowitz Pollack Brant Advisors and Accountants. He can be reached at (954) 712-8888 or via email at 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. Any opinions are those of PWA and not necessarily those of RJFS or Raymond James.

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 or 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. Past performance may not be indicative of future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

 

Department of Labor Targets Employee and Independent Contractor Relationships, Focuses Attention of Construction Industry by Laurie Jennings Arcia, CPA

Posted on October 19, 2015 by Laurie Jennings

How businesses classify workers is again on the radar of the Department of Labor. According to the administrator of the department’s Wage and Hour Division (WHD), a growing number of employers are intentionally misclassifying employees as independent contractors and risking exposure to significant penalties and back taxes and wages. When a business hires and classifies a worker as an independent contractor, it escapes the responsibility of paying federal and state employment taxes on the worker’s behalf and sidesteps its obligation to provide to the contractor worker’s compensation, unemployment insurance and other benefits afforded to full-time employees.

 

To clarify how employers should apply the standards for properly identifying employees under the Fair Labor Standards Act (FLSA), the Labor Department’s Wage and Hour Division (WHD) recently issued a memo that details a “multi-pronged approach” to consider not only employers’ control over workers’ behavior and financials but also the “broader economic realities of the working relationship” between the two. In doing so, the WHD administrator communicated his intent to aggressively target businesses that fail to classify contract workers appropriately, making specific reference to those businesses in the construction, janitorial, auto-retail and logistics/delivery industries.

Is the work an integral part of the employer’s business? If the activities performed by a worker is integral to the employer’s business, it is more likely that the worker is economically dependent on the employer and therefore an employee. As an example, the Labor Department specifies that a homebuilder who hires carpenters to frame a house is an employee essential to the builder’s business.

Does the worker’s managerial skill affect his or her opportunity for profit or loss? A worker whose profits and losses are influenced by his or her authority to hire others, purchase materials and equipment, advertise and set their own hours may reflect independent contractor relationships. Conversely, an employee relationship will exist when a worker’s earnings are affected only by the number of hours he or she works.

How does the worker’s relative investment compare to the employer’s investment? An independent contractor typically makes some sort of investment “beyond a particular job…to further the business’s capacity to expand, reduce its cost structure, or extend the reach of the independent contractor’s market.” Therefore, a business that provides a worker with insurance, use of a vehicle and all equipment and supplies needed to perform a job would indicate an employee relationship.

Does the work performed require special skill and initiative? A worker’s technical skills should not be the sole determining factor in deciding whether he or she may be considered an independent contractor. Rather, a business should also consider the worker’s “business skills, judgement and initiative” to identify whether the worker operates an independent business or whether the worker is economically dependent on the business, which would indicate and employee relationship. 

Is the relationship between the worker and the employer permanent or indefinite? The more permanent a relationship is between a business and a worker, the more likely the relationship is one of employer and employee.  However, according to the Wage and Hour Division of the Department of Labor, permanent relationships are not characterized solely by lengthy time periods nor a worker’s reliance on a business as his or her primary source of income.  Rather, businesses must look at “operational characteristics intrinsic to the industry” in which they operate to identify whether there is a lack of permanence or indefiniteness to qualify as an independent contractor relationship.

What is the nature and degree of the employer’s control?  A worker who neither controls nor exercises control over “meaningful aspects of the work performed” should be consider an employee. In the current business environment of flexible work arrangements and 24/7 access to work product, employers may have limited control over the number of hours employees actually work from home.  However, this lack of control and supervision over workers who rely on businesses for economic support should not be mistaken as anything less than an employee relationship.

In light of the Department of Labor’s announcement, businesses in the real estate and construction industries should re-examine their existing independent contractor relationships to identify if they should, in fact, be converting them to employee arrangements. In doing so, they should look to the types of relationships they have with workers and the amount of behavioral and financial control they have over workers’ responsibilities and payments.

About the Author: Laurie Jennings Arcia, CPA, is an associate director in the Tax Services practice of Berkowitz Pollack Brant, where she provides real estate tax compliance and consulting services to developers, entrepreneurs, high-net-worth individuals and family limited partnerships. She can be reached in the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

Developers Benefit from Rise of New Condo Hotel Financing Option by Edward N. Cooper, CPA

Posted on October 15, 2015 by Edward Cooper

 

Condo-hotel projects that combine residential units with hotel room inventory are back in favor. The revived popularity of these mixed-use projects are due, in part, to the lessons learned from the recession, as well as the availability of new financing options that help developers get projects off the ground.

 

The Allure of Condo-Hotels

Condo-hotels can take many forms. Some projects consist of traditional hotel rooms, containing a bed and bathroom, which are leased to a hotel operator who rents them to the public. Other projects have units that are more like typical residential apartments, featuring kitchens and washer dryers, and that meet local zoning standards to permit owners to occupy their units for extended stays while allowing hotel operators to lease out the units when the owners are away. Still, other projects combine residential condominium units and hotel units. The residential units are sold, and their proceeds are used to reduce the construction debt, so that the hotel portion can be owned outright or with a minimum of debt during its initial start-up phase. In these projects, the residential unit owners typically will not be offered a rental program and, in some cases, the owners are restricted from engaging in short-term rentals of their units.

 

Potential buyers are recognizing and buying into the full-service benefits of living in a hotel-branded property, including housekeeping, maintenance, concierge services and an onsite spa and/or restaurant; and hotel brands and real estate developers are taking notice.

 

The condo-hotel model allows developers to leverage the hotel brand and generate cash flow through pre-sales of condominium units to individual buyers. Often, this occurs before the first shovel hits the dirt and with deposit requirements above the traditional 20 percent. Proceeds from these unit sales help developers build equity and attract the financing required to build these projects to completion, when the hotel operations can kick in to generate cash flow. However, the rules developers must follow to solicit such investments have changed since earlier incarnations of these projects were affected by the credit and real estate crises.

 

Previous Challenges for Developers

Under U.S. law, private securities sold with a buyer’s expectation of profits are considered investment contracts, which are subject to state and federal oversight and prohibited from being marketed to the general public. In the past, the only way that developers or any businesses could market these private offerings was through existing relationships with investors or by engaging the services of broker-dealers registered with the SEC. Subsequently, developers were limited in their ability to promote to prospective buyers the rental agreement portion of condo unit sales and the resulting potential for investment-like profits that buyers would reap as part of their purchase agreements. Recent legislation has changed that.

 

The New Rules

Under the SEC Rule 506(c), which went into effect September 2013, developers may engage in “general solicitation” to market condo units as investments via newspapers, the Internet and other advertising vehicles, when they verify that buyers meet the criteria of a financially sophisticated “accredited investor,” who has a net worth of $1 million and/or a minimum annual income of $200,000 ($300,000 for married couples.)

 

By lifting prior restriction on marketing condo-hotels, the SEC now allows developers to advertise unit sales in tandem with rental arrangements and reach a broader swath of potential buyers, including Latin Americans seeking a safe haven for their money in the U.S. As a result, developers may improve their ability to attract more investors and offset construction costs with deposits earned from purchase contracts. For buyers, the new law provides access to income streams for projections of sales and rentals that are paramount in helping them make informed decisions regarding investing in condo-hotel properties.

 

Condo-Hotel Tax Considerations for Developers

Structuring a condo-hotel is a complicated endeavor that requires advance planning. Developers have a myriad of options available to them, each with their own set of unique and complex revenue-recognition and tax implications. For example, a developer may rent or license the right to operate businesses within the project’s common areas, such as an on-site restaurant and/or spa, to generate ongoing revenue after construction. In some instances, a developer could pay to license the name of a hotel brand and use it as a part of its sales pitch to potential condo unit buyers. In most cases, the developer will retain the rights to operate the rental program for condo unit owners. Unit owners would share the revenue from the rental of their units pursuant to a pre-determined percentage defined in the rental program agreement. In turn, the developer could pay third-parties to perform required rental program services and retain as revenue the spread between what it receives and pays out.

 

The options available to developers of condo-hotels are boundless. With the guidance of experienced tax professionals, developers may select the structure that suits their needs and ensure their efforts do not trigger tax liabilities that can hinder profits.

 

The advisors and accountants with the Real Estate Tax Services practice of Berkowitz Pollack Brant have extensive experience helping developers navigating through a labyrinth of tax-planning issues and developing sound strategies that maximize revenue-generating opportunities.

 

About the Author: Edward N. Cooper, CPA, is a director in the Tax Services practice 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 in the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

A Way Around Section 179 Expensing Limits by Angie Adames, CPA

Posted on October 14, 2015 by Angie Adames

Taxpayers investing in qualifying equipment and property were once able to take a Section 179 deduction of $500,000 for the year. However, for tax years beginning after 2014, the Section 179 deduction limit is scheduled to drop to $25,000. This limit is reduced by the amount by which the cost of Section 179 property placed in service exceeds $200,000. For those taxpayers who acquired or will acquire property in 2015, there is a unique opportunity to get around this challenge, regardless of whether or not Congress acts to restore the more generous deduction before the end of the year. To make matters worse, bonus depreciation is also scheduled to expire at the end of 2015!

 

Under the de minimis safe harbor election of the Tangible Property Regulations, effective for tax years beginning on or after January 1, 2014, taxpayers that meet specific requirements may elect to deduct expenses up to $5,000 per item, per invoice, for certain purchases in the year, rather than capitalize and depreciate those costs over time. By making this annual election, taxpayers may ultimately expense costs in excess of the Section 179 limit, assuming the costs do not have to be capitalized under other IRS provisions, only when they have a written capitalization policy in place at the beginning of the tax year, as well as, applicable financial statements (AFSs), which include audited financial statements. When these conditions are not met, a business with a book capitalization policy in place may instead qualify for a lower de minimis threshold of $500 per item, per invoice.

 

To apply the safe harbor election, consider a business with an existing capitalization policy and independently audited financial statements that buys 1,000 machines at a cost of $5,000 each. It receives an invoice from the supplier indicating the per-unit cost and a total amount due of $5 million. Because each machine qualifies as a separate unit of property under the tangible property regulations, the business may deduct the entire $5 million in 2015, as long as the amounts per unit qualify as deductible and necessary expenses incurred in the normal course of business.

 

For smaller businesses without AFSs, the expensing limit will be limited to $500 per item, per invoice, but they may still benefit from the safe harbor election’s ability to exclude that amount from their Section 179 expensing limit.

 

With the start of the fourth quarter, taxpayers should review their existing capitalization policies to ensure they can qualify for the de minimis election in 2015 while also planning for an uncertain future in 2016. The rules under Section 179 and the tangible property regulations are complex and require the assistance of qualified tax professionals to understand how one may realize the most benefits.

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 business. She can be reached in the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

 

Crowdfunding Offers Real Estate Professionals New Opportunities to Finance Projects by John. G. Ebenger, CPA

Posted on October 12, 2015 by John Ebenger

With the passage of the Jumpstart Our Business Startup (JOBS) Act in 2012, businesses received a unique opportunity to begin selling debt and/or equity stakes in their companies by soliciting capital from the general public online. It did not take long for real estate developers and property owners to take advantage of the law and exercise their newfound freedom to reach out to accredited and non-accredited investors to “crowdfund” projects that include residential and multifamily homes, commercial space and mixed-use developments throughout the U.S.

 

According to industry research firm Massolution, real estate businesses crowdfunded more than $1 billion in 2014, and it expects that amount to more than double to $2.5 billion in 2015, making it the fastest-growing segment of the crowdfunding market. Despite the impressive growth potential of this alternative financing platform, real estate professionals should gain a comprehensive understanding of how crowdfunding works before jumping in with both feet. Following is a broad overview.

 

What is Crowdfunding?

Crowdfunding is an Internet-based platform that serves as an online gathering place for businesses to request and receive from private investors the capital needed to bring their projects and products to market. With some platforms, such as Kickstarter, businesses maintain 100 percent ownership in their projects and do not offer financial returns to investors. Conversely, platforms that specialize in the real estate market promise investors a return on their investment in a project.

 

How does crowdfunding benefit real estate businesses?

Crowdfunding helps real estate businesses, referred to as “sponsors”, access a broader base of potential investors and raise equity and financing faster, more efficiently and with less out-of-pocket fees than they can by relying on banks with stricter credit and lending requirements. For example, some of the existing crowdfunding platforms offer funding of up to 90 percent of a project’s total costs with closings in as little as 15 days. Developers and property owners also gain the ability to market their capital requirements online to a global audience of accredited and non-accredited investors, depending on the type of crowdfunding offering they select.

 

What do investors receive in return from their investment dollars?

Private individuals gain entrée into an often restrictive and currently appreciating real estate market with investment dollars that may match their cash flow and timeline horizons. Participation is open to anyone, with little to no restrictions on an investor’s wealth or income. Moreover, the investment is a passive one, thereby eliminating the time and expenses required to manage and maintain properties in a real estate portfolio.

 

From a tax perspective, investors should seek professional counsel to ensure the crowdfunding platform is properly structured to allow them to take advantage of deductions and other opportunities to minimize or defer taxes.

 

As with any investment, crowdfunding does come with risks that prospective investors should weigh carefully before contributing their money.

 

What requirements do real estate businesses need to meet to crowdfund their projects?

Real estate operators should be aware of the compliance requirements under the JOBS Act, some of which will vary depending on the amount of money the sponsor seeks to raise.

 

For example, under Rule 506(c) of Regulation D of the JOBS Act, developers may only accept funds from accredited investors, who the developer must verify and confirm meet the accredited requirements (i.e. individuals with a minimum annual income of $200,000 or a minimum net worth of $1 million, excluding a primary residence). A Rule 506(b) offering allows a developer to raise money from an unlimited number of accredited investors and a maximum of 35 non-accredited investors, all of whom must be “existing customers.” To get around this wrinkle, the SEC allows investors to qualify as customers by registering on a real estate crowdfunding site and waiting 30 days before investing. Finally, a Regulation A offering allows real estate operators to raise up to $50 million annually from both accredited and non-accredited investors, provided the operators register with the SEC and every state where securities are sold, and meet the periodic filing requirements. To streamline this process, the SEC earlier this year adopted Regulation A+, which allows real estate operators to sell shares in “Tier 1” offerings of up to $20 million and “Tier 2” offerings of up to $50 million to the general public through unregistered offerings that are not subject to reporting requirements.

 

With states across the country adopting their own set of crowdfunding laws and the SEC’s plan to establish a formal set of rules for crowdfunding by the end of 2015, real estate operators and investors should anticipate changes to the existing framework.

 

How do I select the crowdfunding platform that is right for my business?

According to Massolution’s March 2015 report on the state of the real estate crowdfunding market, there were 85 active platforms in the U.S. and more in the pipeline. Developers and property owners should perform due diligence before selecting the platform that is right for them. Some things to consider include the real estate experience and track record of the platform’s management team, how well the platform is capitalized and the fees the platform charges upfront as well the percentage of investment dollars it collects at closing.

 

Each of the crowdfunding platforms currently marketing its services to real estate operators relies on different criteria when selecting with which projects they choose to work. Some consider whether the real estate operator is looking for equity or debt financing. Others look at the project’s location, appraised value and timeline to completion, and/or the sponsor’s existing cash flow, its financial investment in the project and its plans of how it will use the money it raises.

 

Real estate crowdfunding has the potential to provide project developers, owners and operators with access to billions of dollars in financing from private investors throughout the world. However, because this venue for raising capital is in its infancy, real estate professionals should engage the counsel of experienced legal and accounting professionals to ensure they maximize the benefits of crowdfunding while maintaining compliance with evolving regulations.

 

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.

 

Florida Offers Homeowners a Property Insurance Safety Net by David Siegel, CPA, ABV, CFF, CIRA

Posted on October 09, 2015 by

By David Siegel, CPA, CFF, ABV, CIRA

Florida property owners are no strangers to the devastating effects of hurricanes and tropical storms. Yet, despite a decade with no direct hits, Florida remains home to some of the nation’s highest homeowners’ insurance premiums. Currently, with few national insurers writing policies in the state, Floridians’ coverage options are limited to local start-up companies. Should a major storm make landfall, there is a possibility that the resulting property claims could take out some of these undercapitalized firms. In fact, according to the Personal Insurance Federation of Florida, 11 of the 29 insurers that took policies from Citizens, the state’s insurer of last resort, became insolvent, were ordered to stop writing policies or were taken over by other companies between 2003 and 2009. While there is a potential for insurance companies to fail, policy holders in Florida can be reassured that there is a system in place to take care of their claims should their insurer become insolvent.

In 1970, the Florida legislature created the Florida Insurance Guaranty Association (FIGA) to handle and pay to property owners certain covered claims of insolvent property and casualty companies.   Nationwide, the guarantee association system has paid out approximately $24.2 billion in claims relating to approximately 600 insolvencies.

Working with FIGA requires property owners to understand the process for claim filings and the limits to payments. In the event of an insurance company failure, FIGA steps in as a safety net to pay insureds, within 60 days following the order of liquidation, the full value of covered claims up to certain limits. When an insurance company becomes insolvent, FIGA will pay claims up to $300,000, above the original policy deductible, with limits applying to (1) damages to structure and contents on homeowners’ claims and (2) on condominium and homeowners’ association claims.  To recover amounts above the cap, policy holders may file a claim against the assets of the insurance company estate by completing a “Proof of Claims” form issued by the Receiver.

The Forensic Accounting and Business Insurance Claims practices of Berkowitz Pollack Brant works with the Florida Department of Financial Services to recover money for insolvent insurance company estates and individuals and businesses to prepare for and maximize financial recovery from insured perils.

About the Author: David Siegel, CPA, CFF, ABBV, CIRA, is an associate director of Forensic and Business Valuation Services with Berkowitz Pollack Brant. He can be reached in the CPA firm’s Miami office at (305) 379-7000 or via e-mail at info@bpbcpa.com.

 

 

Updated – New Basis and Reporting Rules for Estates and Beneficiaries by Jeff Mutnik, CPA/PFS

Posted on October 08, 2015 by Jeffrey Mutnik

Under legislation enacted on July 31, 2015, recipients of assets from a decedent’s estate must abide by the basis of acquired property included and reported in the estate’s tax return. As a result, beneficiaries may not value inherited property any higher than the basis reported by the estate, and such basis will remain in effect for all future years and purposes. This eliminates the potential for a beneficiary to claim a higher value (and thus higher basis) for property that the estate previously valued and reported.

In the past, beneficiaries to an estate have prevailed in court when claiming a higher basis on inherited property than that which was reported on Form 706, Estate Tax Return, after the statute of limitation had expired. Such a move barred the IRS from increasing the value and related tax on Form 706. Similarly, beneficiaries have, in the past, successfully claimed more basis for an asset than the reported estate tax value when an estate plan was structured to use other assets inherited by other beneficiaries to pay any increase in estate taxes. Under the new rules requiring consistent reporting based on the estate tax value, these strategies will no longer be viable.

To ensure compliance with consistent basis reporting, the legislation further requires executors of estates, and in some cases beneficiaries, to provide to the IRS and each person acquiring an interest in estate property a statement identifying the value of each estate assets at the time of the tax return filing. Following several extension, the due date for filing these statements is now June 30, 2016.

The consistent basis reporting requirements apply to estate tax returns filed after July 31, 2015.

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.

 

 

Recharacterizing IRA Contributions – Deadline Approaching by Jeffrey M. Mutnik

Posted on October 02, 2015 by Jeffrey Mutnik

Taxpayers wishing to undo a Roth IRA conversion or change the classification of a contribution to a traditional IRA in 2014 have a unique opportunity to do so if they act by October 15.

 

Recharacterizing an IRA contribution or Roth conversion allows investors to change the tax treatment of all or a portion of their investments and treat their original contribution or Roth conversion as if it never occurred. A common reason for rolling over a traditional IRA to a Roth is to take advantage of future tax-free earnings growth. Since the amount rolled over is considered a distribution from the traditional IRA (i.e. taxable income), it is particularly good tax planning to consider a rollover in a year with low (or lower than normal) other income. However, investors may elect to reverse a Roth conversion if the value of assets declined and the investor does not want to pay taxes on the original, greater amount, or if the income generated from a conversion to a Roth IRA will put the investor in a higher than expected tax bracket. Regardless of the reason, the tax implications of the contribution, distribution, conversion and/or recharacterization must be understood to avoid unexpected and/or unwanted surprises.

 

When recharacterizing the full amount in an IRA, all contributions and earnings transfer to the new IRA. However, when recharacterizing a portion of an IRA, investors need to determine how much of the earnings are attributed to that portion. The formula for computing this measure of net income is:

 

Net Income = Contribution X (Adjusted Closing Balance – Adjusted Opening Balance)

Adjusted Opening Balance

The Adjusted closing balance is the fair market value of the IRA at the end of the computation period, including distributions or recharacterizations made prior to that point.

The adjusted opening balance is the fair market value of the IRA plus any contributions, transfers or recharacterizations made to the account during the computation period.

In many instances, an IRA custodian will calculate the amount of net income to be transferred.

 

Calculating the net income loss or gain is tricky, especially when considering that the IRS does not allow investors to cherry pick assets for recharacterization. Rather, all gains and losses must be prorated within the entirety of the IRA. Therefore, many taxpayers use multiple Roth IRA accounts when converting from a traditional IRA. Each account only invests in one particular asset class. If that asset class increases in value, the account stays a Roth IRA. If the account decreases in value, the account is recharacterized in full to avoid the prior year taxation of a depreciated asset.

 

IRA conversions and recharacterizations are powerful tools in an investor’s tool box that should be wielded under the guidance of tax professionals and estate planners who can properly assess the related tax implications and impact on one’s overall retirement savings plan.

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.

 

Governments Face New Disclosure Requirements on Tax Abatement Programs by Deede Weithorn, CPA

Posted on October 02, 2015 by

The Government Accounting Standards Board on August 3, 2015, approved a new standard for which city and state governments will be required to report the total amount of financial benefits they provide to businesses and other taxpayers as part of incentive agreements.

Under the new rule, which goes into effect for the 2016 tax year, municipalities will be required to disclose the value of property, sales and income taxes they waive under tax abatement agreements. Additionally, municipalities will now be required to report the purpose of their tax abatement programs, provisions for recapturing abated taxes and other commitments agreed to as part of these public-private partnerships.

Governments use tax abatement programs to lure new businesses to their municipalities or to keep current businesses within their city limits in order to spur economic development, job growth and the redevelopment of underserved communities. According to the GASB, these tax breaks, while beneficial, are not transparent enough to demonstrate to citizen groups, bond analysts and other interested parties whether or not they are actually hindering the ability of governments to raise revenue.

The professionals with Berkowitz Pollack Brant’s Tax and Audit practices have extensive experience working with governmental agencies to maximize the benefits of private-public partnerships while complying with reporting requirements.

About the Author: Deede Weithorn, CPA, is an associate director in Berkowitz Pollack Brant’s Audit and Attest Services. She can be reached at the firm’s Miami CPA office at (305) 379-7000 or e-mail dweithorn@bpbcpa.com.

 

 

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