As the year draws to a close, U.S. individuals, businesses, trusts and estates should begin the process of preparing to meet their 2016 tax-year obligations, which includes new filing deadlines in the New Year.
Looking ahead, taxpayers must adjust their calendars in 2017 to meet the following revised filing deadlines for the 2016 tax year:
- Partnerships and S Corporations that close their years on December 31, 2016, will have a March 15, 2017, deadline to file Form 1065, U.S. Return of Partnership Income. With the shorter filing deadline, taxpayers requesting a six-month extension face an equally abbreviated filing deadline of September 15, 2017.
- Calendar-Year C Corporation income tax returns on Form 1120 will now be due on April 15, 2017 ,with an extended due date of September 15, 2017. This will continue until December 31, 2025. After December 31, 2025, the extended due date will be moved to October 15, 2017.
- June 30 Year End C Corporation income tax returns on Form 1120 will continue to be due on September 15 with a new extended due date of April 15. This will continue until December 31, 2025. After December 31, 2025 (2027 filing season), the original due date will be moved to October 15 and the extended due date will remain April 15.
- Fiscal Year End (other than December 31 or June 30) C Corporation income tax returns on Form 1120 will be due on the fifteenth day of the fourth month after year end, with an extended due date of the fifteenth day of the tenth month after year end. This is applicable for tax returns starting with the 2017 tax filing season.
- While Employee Benefit Plans will continue to have a July 31 filing deadline for Form 5500, the filing extension deadline will change to November 15, 2017.
- Trusts and Estates will continue to have an April 15 income tax filing deadline via Form 1041. However, taxpayers requesting a filing extension will have an additional 15 days to meet a deadline of September 30, 2017.
- Taxpayers with financial interest in or signature authority over a foreign financial account, including bank accounts, brokerage accounts, mutual funds or trusts exceeding certain thresholds, must file FinCen Form 114, Report of Foreign Bank and Financial Accounts (FBAR) by April 15, 2017, two-and-a-half month earlier than in prior years. For the first time, FBAR filers for the 2016 tax year may request a six-month filing 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, 2017, or request a six-month extension to file by October 15, 2017.
- Exempt organizations have a May 15, 2017, filing deadline, unless they request a single, automatic six-month extension to November 15, 2017.
The U.S. tax laws are complex and subject to frequent changes. As a result, it is important for taxpayers to meet with professional accountants to develop and implement appropriate strategies that maximize financial growth as well as tax efficiency and compliance.
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.
The results of the 2016 U.S. elections signal a high probability that the country’s tax code will be reformed in the near future. However, before the new Congress convenes on January 3 and President-elect Donald Trump takes office on January 20, individuals should take some time now to review their finances and identify last-minute strategies to preserve wealth and minimize tax liabilities for the 2016 tax year.
Accelerate Deductions and Defer Income. Under the tax plan proposed by Donald Trump, individual taxpayers may be looking at more generous deductions and lower income tax rates in the future. In addition to eliminating the Net Investment Income Tax and the Alternative Minimum Tax, Trump proposed capping the highest income tax rate at 33 percent, down from 39.6 percent. By postponing recognition of income, such as holiday bonuses or 2016 consulting income, individuals may ultimately pay less tax on their earnings under the Trump presidency. Similarly, taxpayers may prepay in 2016 some of the deductible expenses they expect to incur in 2017 in order to reduce their taxable income for the current tax year.
Check Withholding. Taxpayers should meet with their accountants before the end of the year to calculate if they made any tax overpayments or underpayments during the year. Rather than facing a significant tax bill and penalties, taxpayers may fix a tax shortfall by increasing the year-end withholding on their salary.
Plan for the Future. Employees with access to a 401(k) retirement savings plan may contribute up to $18,000 ($24,000 for individuals age 50 or older) by the end of the year. For individuals with traditional IRAs or Roth IRA, the contribution limit for 2016 is $5,500 ($6,500 for individuals age 50 or older), which must be made by April 15, 2017. Taxpayers who own businesses have several options to establish and contribute to a retirement plan that provides them with a foundation for a comfortable retirement as well as significant current tax-saving benefits.
Take Required Minimum Distributions. Owners of traditional IRAs; SEP IRAs; SIMPLE IRAs; and 401(k), 403(b) and 457(b) retirement plans who are at least 70 ½ year old must take required minimum distributions (RMDs) from their accounts by December 31, 2016. The deadline for taxpayers who turned 70 ½ in 2016 is April 1, 2017. For proper planning, retirement account owners should remember that RMDs are considered taxable income. Failure to take an RMD will result in a penalty equal to 50 percent of the undistributed amount.
Give to Charity. By donating cash or property to qualified charitable organizations before December 31, 2016, taxpayers can claim a charitable deduction that reduces their taxable income and helps those in need. All donations must be supported with documentation, including a written letter or email of acknowledgement from the charity. Taxpayers older than 70 ½, may make a charitable donation directly from their IRAs to receive a charitable deduction as well as the ability to exclude the donation amount from their income. Moreover, the distribution will satisfy the elder taxpayer’s required minimum distribution for the year.
Give to Anyone. For 2016, individuals may gift up to $14,000 to as many people as they wish, free of gift and estate taxes. For married couples, the annual gift tax exclusion is $28,000 per recipient.
Harvest Tax Losses. Individuals whose investments yielded gains in 2016, may offset their tax liabilities on capital gains and Net Investment Income by selling some losing investments. Harvesting tax losses should be conducted only as part of a comprehensive estate planning strategy and under the guidance of professional accountants and qualified financial advisors.
Revisit Estate Plans. A number of tax laws affecting estate plans changed over the past 12 months or are slated to change in the near future. As a result, it’s important that taxpayers met with their accountants and advisors to ensure their plans take advantage of the most current tax-saving opportunities.
About the Author: Rick D. Bazzani, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where he provides individuals with a broad range of tax-efficient estate-, trust- and gift-planning services. He can be reached in the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or at info@bpbcpa.com.
Taxpayers who owe between $50,000 and $100,000 in assessed back taxes, penalties and interest will have an easier option for paying off their tax debt, under a new IRS test program that will run through Sept. 30, 2017.
Previously, tax debts exceeding $50,000 required complex financial disclosures and lien filings. However, under the Fresh Start Program, affected taxpayers may now simply pick up the phone or submit a form to establish a streamlined installment payment plan agreement with the IRS via payroll deductions or direct debits from taxpayers’ financial accounts. A federal tax lien will remain a concern for taxpayers owing more than $50,000, but they will be relieved of the responsibility to provide financial condition documentation, unless they do not agree to automatic payment terms. In addition, taxpayers whose debt falls within the higher dollar threshold will be granted an additional 12 months to pay off their tax debt. For those individuals whose passports were taken away in 2016 due to excessive tax debt, fast action can provide them with an opportunity to remove passport restrictions imposed on them by the State Department.
While the IRS continues to update its Fresh Start program and improve its ability to collect unpaid taxes, individuals with outstanding balances should consult with a professional accountant to explore their repayment options.
About the Author: Andreea Cioara Schinas, CPA, is a director with Berkowitz Pollack Brant’s Tax Services practice, where she provides corporate tax planning for clients through all phases of business operations, including formation, debt restructuring, succession planning and business sales and acquisitions. She can be reached in the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000, or via email at info@bpbcpa.com
The annual enrollment period for Florida’s Prepaid College Plan opened on October 15, 2016, providing families with an opportunity to begin saving for a child’s future education at one of the state’s public universities before a child reaches the 12th grade. Open enrollment continues until February 28, 2017.
Since 1987, the Florida Prepaid College Program has enabled state residents to lock in and prepay today’s costs for a child’s future college education. For the 2016-2017 enrollment period, the cost of a traditional four-year university plan, which covers tuition for 120 credit hours at a Florida institution, is $187 per month for a newborn child, just $4 more than the prior year. The least expensive plan is less than $47 per month for a newborn and covers one year of tuition. Consumers can review all available plans at www.myfloridaprepaid.com.
Enrollees can choose to prepay college costs on a lump-sum or monthly basis, with no payment until after April 20, 2017. The amount covered by a prepaid plan may be transferred by a student to other schools across the U.S., in the event he or she decides to pursue a degree out of state.
Early college savings programs like Florida Prepaid help families afford the rising costs of a college education while reducing the national problem of student loan debt. When combining one of these plans with a 529 college-savings plan, families can better prepare to pay for all of the additional costs of a college education, including room and board, books and computers.
For more information on Florida’s Prepaid College and 529 Savings plans, contact your accountant or visit www.myfloridaprepaid.com.
About the Author: Rick D. Bazzani, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where he provides individuals with a broad range of tax-efficient estate-, trust- and gift-planning services. He can be reached in the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or at info@bpbcpa.com.
The election of a new president brings with it the expectation and hope for positive change. Among the policy platforms proposed by President-elect Donald J. Trump is a revamp of the country’s Federal tax code. While it remains to be seen whether or not Trump’s plans will become the law in 2017, it is critical for individuals and business owners to have a grasp of what Trump’s tax vision entails and how it may impact them.
With the New Year just weeks away, it is a good time for taxpayers to meet with their accountants to develop strategies that align with Trump’s proposed plan and maximize opportunities for wealth preservation and future tax efficiency, including such concepts as simple as deferral of income from 2016 to 2017 and acceleration of deductions in 2016.
Following are highlights of the current tax laws that are in effect compared with those proposed policy changes on which Trump campaigned.
Individual Taxes
Income Tax Rate
Current Law
- 7 tax brackets with a maximum tax rate of 39.6%
- High-income earners are subject to an additional 3.8% tax on Net Investment Income, bringing the rate up 43.4%.
- High-income earners are also subject to the Alternative Minimum Tax (AMT)
Trump’s Proposed Plan
- 3 tax brackets with rates of 12%, 25% and a maximum rate of 33% for taxpayers earning more than $225,000.
- Elimination of the Net Investment Income Tax on high-income earners
- Elimination of the Alternative Minimum Tax (AMT)
Long Term (One-Year) Capital Gains and Qualified Dividends
Current Law
Trump’s Proposed Plan
Carried Interest on Long-Term Investment Property
Current Law
- Taxable at 20% long-term capital gains rate
Trump’s Proposed Plan
- Taxable as ordinary income, with a top rate of 33 percent
Standard Deduction
Current Law
- $6,350 for single taxpayers
- $12,700 for married taxpayers filing jointly
- $9,350 for heads of household
Trump’s Proposed Plan
- $15,000 for single taxpayers
- $30,000 for married taxpayers filing jointly
- Elimination of Head of Household filing status
Itemized Deductions
Current Law
- Phase outs begin for single taxpayers with $261,500 adjusted gross income and $313,800 for married taxpayers filing jointly
Trump’s Proposed Plan
- Capped at $100,000 for single taxpayers and $200,000 for married taxpayers filing jointly
Estate Tax
Current Law
- A maximum tax rate of 40% levied on estates valued at more than $5.49 million for individuals, or $10.98 million for married couples (adjusted for inflation).
Trump’s Proposed Plan
- Elimination of the estate tax with a maximum capital gains rate of 20% applying to estates valued at more than $10 million; special exemptions will apply to small business and family farms
- Elimination of a decedent’s ability to contribute appreciated assets into private charities
Gift Tax
Current Law
- Annual exclusion of $14,000 per taxpayer; lifetime exclusion of $5.49 million
Trump’s Proposed Plan
- Elimination of the gift tax
Childcare
Current Law
- Child- and dependent-care tax credit that is reduced for taxpayers with adjusted gross income exceeding $43,000
Trump’s Proposed Plan
- Convert existing credit to an above-the-line deduction with exclusions eliminated for single taxpayers with total income above $250,000, or $500,000 for married taxpayers
- Establish a Dependent Care Savings Account with annual contributions capped at $2,000 per donee.
Business Taxes
Corporate Tax Rate
Current Law
- Maximum rate of 35%
- Pass-through entities pay ordinary income tax rate on owners’ individual tax returns
- Maintain corporate AMT
Trump’s Proposed Plan
- Maximum rate of 15%
- Option for pass-through entities to elect a flat tax of 15% on income retained in their businesses
- Eliminate the corporate AMT
Corporate Tax Deductions and Credits
Current Law
- Includes the Domestic Production Activities Deduction, the Research & Development Tax Credit and others
Trump’s Proposed Plan
- Maintains only the R&D Credit
- Eliminates the Domestic Production Activities Deduction
Un-patriated Foreign Corporate Earnings
Current Law
- Not taxable until earnings are brought back to the U.S.
Trump’s Proposed Plan
- Subject to a one-time tax of 10% of the total amount of profits held offshore
Employer-Provided Childcare Deductions
Current Law
Trump’s Proposed Plan
- Capped at $500,000 with an additional deduction for employers who contribute to Dependent Care Savings Accounts
About the Author: Barry M. Brant, CPA, is director of Tax, Consulting and International Services with Berkowitz Pollack Brant, where he leads the firm’s private client group and provides guidance on complex tax matters and issues related to multi-national holdings, cross-border treaties and wealth preservation and protection. He can be reached in the CPA firm’s Miami office at 305-379-7000, or via email at info@bpbcpa.com.
The traditional method that businesses, including real estate developers, have used to account for lease transactions is in for a significant change.
For many years, users of financial statements criticized lease accounting rules for failing to provide a complete picture of a company’s financial performance. More specifically, while businesses were required to record on their books assets and liabilities relating to capital leases, and subsequently claim depreciation and deduct interest expense of lease payments, they were not required to report on their balance sheets assets and liabilities relating to operating leases. The only mention of such operating lease obligations were included as footnotes on businesses’ financial statements. By keeping these lease contracts off of their balance sheets, businesses essentially avoided reporting the true economics of their lease assets and their obligations to pay for those assets, thereby presenting investors and lenders with a skewed representation of their asset and credit risk.
In response, the Financial Accounting Standards Board (FASB) issued in February new rules that will become effective for public companies beginning after December 15, 2018, and private companies beginning after December 15, 2019. While these dates may seem like a long way off, it behooves businesses to begin preparing for them now to prepare for and mitigate significant costs and complexities relating to their operations and liabilities.
The New Lease Accounting Standard
Under guidance contained in ASU No. 2016-02 Leases (Topic 842) businesses will be required for the first time to record on their balance sheets all assets and liabilities related to operating leases with terms greater than 12 months. For leases with terms of 12 months or less, the lessee will be permitted to make an accounting-policy election to exclude recognition of lease assets and liabilities. Adding to these changes is the requirement that businesses disclose qualitative and quantitative data about lease transactions, including information about variable lease payments and options to renew and terminate leases.
Because the new standard will represent the first time that many businesses will recognize operating leases on their balance sheets, the amount of lease assets and liabilities they report may be different than in prior years. This may present an equally significant difference in the representation of their financial positions. For example, businesses with large portfolios of leases for office equipment, machinery, airplanes or portfolios of real estate may subsequently report increased amounts of debt owed on their lease obligations. This may essentially change the way investors, lenders and other users of financial statements view a business’s contractual obligations, their financial picture and their operating efficiency.
Moreover, because the new leasing guidance requires businesses to take a modified, retrospective approach in their transition to the new standard, reporting organizations may need to spend significant time preparing for adoption. For example, a business adopting the new standard in 2019 will need to track down their rights and obligations relating to assets previously underrepresented on their balance sheets and report them on their 2018 comparative financial statements. In addition, adoption of the new lease accounting standard may require businesses to put into place new systems for monitoring and tracking these arrangements in the future.
Applying the New Leasing Standard
From the onset, a lessee should classify a lease as either a finance lease or an operating lease.
In many cases, businesses will find that what they once considered an operating lease will soon qualify as a finance lease. More specifically, a lease meeting any of the following criteria will be considered finances leases, which must be presented on the balance sheet separate from operating leases:
- The lease transfers ownership of the underlying asset to the lessee by the end of the lease term;
- There is an option to purchase the underlying asset, and it is reasonably certain that the lessee will exercise the option;
- The lease term is 75 percent or more of the remaining economic life of the underlying asset;
- The present value of the lease payments equals or exceeds substantially all of the fair value of the underlying asset
- The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
When a lease does not meet any of these five conditions, it will be classified as an operating lease. In these situations, the lease liability will not be considered a bank debt-related liability and will therefore be excluded from debt-related covenant calculations.
For operating leases, a lessee must do the following:
- Record a right-of-use asset and a lease liability on the balance sheet, measured at the present value of the lease payments; and
- Recognize a single lease cost on the income statement by allocating the cost of the lease over the lease term on a generally straight line basis. The straight line lease expense will reflect the interest expense on the lease liability (effective interest method) and amortization of the right of use asset.
When measuring lease assets and lease liabilities, businesses should pay careful attention to their calculations, which may get tricky. For example, if a lease has an option to extend the terms or to purchase the underlying asset of the lease, and it is reasonably certain that the lessee will exercise the option, then the businesses will be required to include those payments in the calculation of the lease assets and liabilities.
Conclusion
It is imperative that businesses involved in lease transactions start thinking about and preparing for transitioning to the FASB’s new guidance in 2017. This will certainly require investments of time to track down older lease agreements and, most likely, investments of capital to change lease systems and related internal controls.
The audit professionals with Berkowitz Pollack Brant work closely with U.S. and international businesses, non-profits and other entities to meet their financial reporting obligations. This includes assessments of internal controls and business practices, due diligence for mergers and acquisitions and recommendations for improving profitability and operating efficiency.
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.
December 7: Last day Medicare beneficiaries may enroll in new plans for 2017.
December 15: Deadline to file Form 1040 NR, U.S. Nonresident Alien Income Tax Return, if an extension was previously filed
December 15: Deadline for calendar-year Corporate 4th Quarter Estimated Tax Payment
December 31: Deadline for individuals over age 71½ to take a required minimum distribution (RMD) from traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k), 403 (b) and 457(b) retirement plans
December 31: Deadline for employers to set up pension or profit-sharing plans for 2016
December 31: Due date for amendments to safe-harbor profit-sharing plans
January 15: Deadline for individual 4th Quarter Estimated Tax Payment
January 31: Deadline for businesses to file 4th Quarter Payroll Reports
January 31: Deadline for taxpayers to enroll in healthcare coverage via the federal and state marketplaces under the Affordable Care Act
January 31: New deadline for employers to file copies of Forms W-2 and 1099-MISC with the Social Security Administration and the IRS and furnish copies to their employees and independent contractors, unless the employer requests a 30-day filing extension.
February 1: Deadline for applicable large employers with 100 or more full-time equivalent employees to provide to employees IRS Forms 1095-B, Health Coverage, and 1095-C, Employer-Provided Health Insurance Offer and Coverage, detailing health care coverage the employer provided, or did not provide, to its workforce in 2016
February 28: Deadline for employers to file certain 1099s with the IRS; March 31 if filed electronically.
February 28: Deadline for Florida residents to enroll in the state’s Prepaid College Savings Plan
March 15: Deadline for calendar-year S Corporations to file annual tax returns using Form 1120-S or request a six-month filing extension
March 15: New deadline for calendar-year Partnerships to file annual tax returns or request a six-month filing extension. Partnerships should also furnish copies of Schedules K-1 to each partner by this date.
March 15: Deadline for taxpayers receiving money from a foreign trust to file Form 3520-A, Annual Information Return of a Foreign Trust with a U.S. Owner
Global uncertainty continues to fuel international investment in U.S. real estate due to the low capital costs in the form of near record low interest rates as well as the potential for significant yields. However, Russian investors who are not considered U.S. citizens face a complex U.S. tax system that can lead to negative tax consequences when they own interests in U.S. real property. To address this challenge, savvy investors must engage in advanced planning to select the most tax-efficient structure for their real estate transactions stateside.
Tax Liabilities Based on U.S. Residency
The U.S. system of taxation categorizes foreign individuals as resident aliens or non-resident aliens, depending on whether or not they meet certain tax residency thresholds, including, but not limited to, a complex calculation of the number of days they have a physical presence in the U.S., their “connection” to another country and/or the existence of a tax treaty between the U.S. and their home countries. In the simplest terms, resident aliens are required to report and pay income tax on their global income, whereas non-resident aliens pay tax only on income derived from U.S. sources. Therefore, foreign investors should plan in advance to ensure they are not inadvertently subject to U.S. tax on their global income.
When a Russian investor meets the definition of a non-resident alien (NRA), he or she may be able to further minimize taxes and other expenses by purchasing and owning U.S. real estate directly or indirectly through a corporation or some other type of entity.
NRAs who invest in U.S. real estate may be subject to several different types of federal tax, including income tax on rental profits, income tax on property sales, and estate tax on the transfer of property to heirs. In addition, the Foreign Investment in Real Property Tax Act (FIRPTA) generally requires that individuals purchasing a U.S. real property interest from sellers who are NRAs or foreign entities must withhold 15 percent of the gross purchase price and remit such withholding to the U.S. tax authorities. It should be noted that there are a few exceptions to the general withholding rule, and with proper planning and the appropriate set of facts, the withholding may be reduced or eliminated.
Structuring Investment in U.S. Real Estate
The U.S. tax code and corresponding regulations have a lengthy list of rules that apply to NRA investments in U.S. real estate, including U.S. real property, a U.S. real property interest (USRPI) or a U.S. Real Property Holding Company (USRPHC).
A USRPI refers to direct ownership of real estate located within the U.S. as well as indirect ownership of U.S. real estate through domestic or foreign entities. It also means any interest, other than one solely as a creditor, in any domestic corporation unless the corporation was at no time a USRPHC during the shorter of the period during which the interest was held, or the 5-year period ending on the date of disposition. If on the date of property disposition the corporation did not hold any USRPIs, and all of the interests held at any time during the shorter of the applicable periods were disposed of in transactions in which the full amount of any gain was recognized, the interest in the corporation is not a USRPI. In general, a domestic corporation meets the definition of a USRPHC if the fair-market value of the U.S. real estate equals or exceeds 50 percent of the total value of the corporation’s property interests, including real estate located outside the United States and other business assets.
Foreign investors should consider using one of the following structures when investing in U.S. property.
Direct Ownership. The primary benefit of owning property directly is that the NRA should be able to utilize the preferential long-term capital gain tax rates when the property is sold. When an NRA invests in a permanent residence in the United States, he or she typically will not qualify for a property tax reduction via the homestead exemption. In addition, they may be subject to FIRPTA withholding requirements when they sell the property, and they could leave their heirs with estate tax liabilities when they pass away.
Domestic Corporation. Investment in U.S. real property interests via a domestic corporation is another option. The domestic corporate structure eliminates the FIRPTA withholding requirements, and it also eliminates the need for investors to file U.S. individual income tax returns with the IRS. The disadvantages of this approach include ineligibility to utilize the preferential long-term capital gains tax rates as well as exposure to double taxation, in which the corporation pays corporate taxes and withholds 30 percent of dividend payments for tax purposes (absent a qualifying income tax treaty). Furthermore, if a foreign person passes away while owning shares of a U.S. corporation, the decedent may be subject to U.S. estate tax based on the value of such shares.
Foreign Corporation. Another traditional approach for NRAs to own USRPIs is through a foreign corporation. The U.S. tax implications associated with the foreign corporate structure are fairly similar to those of the domestic corporate structure, but with one notable exception: Generally, shares of a foreign corporation, even though the foreign corporation owns USRPIs, are not subject to the U.S. estate tax regime. Accordingly, a NRA that invests in USRPIs via a foreign corporation should be able to mitigate his or her U.S. estate tax exposure.
Other Options
Russian investors may opt to rely on a more complex tax-minimizing structure, including one in which a foreign corporation owns a domestic corporation that owns U.S. real property interests. This structure reduces exposure to estate tax liability on the transfer of such stock and to FIRPTA withholding on the sale of stock in the foreign corporation.
Alternatively, NRAs can establish trusts and so-called “pass-through” entities or corporations to hold USRPIs. These complex structures may provide the NRA with the ability to utilize the preferential long-term capital gains tax rates while also achieving U.S. estate tax protection. Furthermore, Russian investors should consider the implications of the U.S. – Russia Income Tax Treaty to determine if there are any provisions that provide preferential U.S. tax treatment.
As Russian investors continue to chase yields in U.S. real estate, they must devote significant time and attention to tax-planning risks and opportunities.
About the Author: Ken Vitek, CPA, is a senior manager with Berkowitz Pollack Brant’s International Tax Services practice, where he provides income and estate tax planning and compliance services to high-net-worth families and closely held businesses with an international presence. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.
As Hurricane Matthew churned along South Florida’s coastline, residents and businesses dodged a potentially devastating bullet. Yet, the storm serves as an important reminder about how businesses must prepare for and respond to natural disasters in order to minimize losses and ensure their long-term viability. The actions a business takes during the first few days following a loss can often determine the success of its recovery and settlement of insurance claims for property damages and lost profits.
Following are six tasks that well-prepared businesses incorporate in their continuity plans. If such a plan does not already exist, a business should still consider adopting these best practices to make the recovery process smoother and improve their chances of a complete and satisfactory recovery.
Step 1: Assess Damages. As soon as the danger has passed, business owners should conduct the following activities:
- Identify the cause and origin of the loss
- Assess structural components of the remaining facilities
- Determine the scope of physical damage
- Reach a consensus with an insurance representative on the scope of the damages
- Conduct a count of damaged and/or destroyed inventory
It is recommend that business owners record the damages they incurred via videotape as soon as possible after incurring a loss. A narrated video provides an inexpensive ounce of prevention if there are future disputes with insurers about specific damage.
Step 2: Protect and Secure the Site. Boarding up broken windows, making temporary roof repairs, covering machinery to protect against the elements and disconnecting utility services are examples of activities businesses should engage in to protect their property from further damage. In addition, consideration should be given to securing the damaged area with temporary fencing or security personnel to ensure it remains intact for subsequent investigation and calculation of losses. Retail establishments should take extra care to avoid looting. Securing the site and protecting property is typically an insurance policy requirement. Plus, it will help to expedite the business’s return to its normal operations.
Step 3: Form a Recovery Task Force. Business owners looking to get their operations up and running quickly must act fast to reestablish revenue streams from customers. The best way to accomplish this is to have a solid recovery plan carried out by a company task force made up the following key constituents:
- Employees representing the business’s damaged operations, such as an operations manager, head of manufacturing, etc.
- Personnel responsible for rebuilding, such as a facilities manager, project manager, etc.
- A representative with the construction contractor
- A risk manager or other staff member in charge of corporate insurance policies
- Key staff members who interact regularly with customers, such as sales directors or customer relations representatives
- A corporate finance or accounting liaison, who will serve as the gatekeeper to gather, track, and record the repair costs as well as distribute the necessary information to other appropriate parties
- Other consultants retained to assist in the recovery, including engineers, reconstruction experts and outside accountants and consultants
Step 4: Be Involved in Estimations of Losses. When an insured business has a covered loss, the insurance carrier will typically send out one of its adjuster to establish a “reserve”, which is an initial estimate of the loss. Rather than leaving this initial loss estimation solely in the hands of insurance adjusters or other outside consultants, business owners should involve themselves in the process. No one knows a business better than its owner(s), who have unique knowledge about the business’s operations and facilities as well as the cost of replacement equipment, building materials or temporary locations. Moreover, a business interruption estimate prepared in cooperation with a business owner is less likely to overlook important factors that might affect the ultimate amount of covered losses, such as recently awarded contracts, new customers, new products, recently implemented or soon to be implemented cost savings or efficiencies, which may affect the ultimate amount of the loss.
Step 5: Establish a Loss Accounting System. There are many ways for businesses to account for a loss, but the best method is to use a simple system that follows their normal day-to-day activities. Examples can include creating a set of charge codes related to the loss, establishing separate costs centers for each repair expense category or creating a project work order, as if the repair was a normal project. The goals should be to separate repair costs from normal operating expenses and keep them organized and easy to access.
Step 6: Run Expenses and Invoices through a Corporate Gatekeeper. Invoices for loss-related expenses should be routed to an individual in the business’s accounting department (e.g.; controller, chief accountant, etc.), who can review them for accuracy, appropriate detail and relevance to a claimed loss. The job of the Gatekeeper is to ensure that all invoices meet an insurance company’s reimbursement requirements before a business pays an invoice. If further detail is required from the vendor, it is often much easier to get the information before the invoice is paid rather than after.
Step 7: Get Help. The recovery from a loss is a traumatic and potentially significant event. For some companies, major losses threaten their very existence and a full recovery determines survival or extinction. Getting help from a professional accountant, lawyer and/or engineer who specialize in financial recovery from losses and keeps your best interests in mind can make the process less complicated. They will work with your company, insurance broker and the insurer’s representatives in the time consuming task of preparing complete and fully documented claims, allowing your personnel to concentrate on the task of serving customers, repairing facilities and returning to normal operations. In addition, their fees may be covered by an insurance policy with a “professional fee” or “claim preparation cost” endorsement.
The Forensic Accounting and Business Insurance Claims practices of Berkowitz Pollack Brant has more than three decades of experience helping Florida businesses prepare for and maximize financial recovery from insured perils.
About the Author: Daniel S. Hughes, CPA/CFF, CGMA, CVA, is a director in the Forensics and Business Valuation Services practice at Berkowitz Pollack Brant, where he works with businesses of all sizes on matters involving valuations, economic damages, lost profits and the quantification of business interruption insurance claims. He can be reached in the CPA firm’s Miami office at (305) 379-7000 or via e-mail at info@bpbcpa.com.
Richard Berkowitz is Founding and Executive Chairman; Joseph Saka is CEO, Edward N. Cooper is Director-in-Charge of the Tax Department
MIAMI, FL, November 7, 2016 – Berkowitz Pollack Brant Advisors and Accountants has announced its succession plan, introduced a new chief executive officer and elevated the former CEO to the position of founding and executive chairman.
Joseph L. Saka, CPA/PFS, has been named chief executive officer. Richard A. Berkowitz, JD, CPA, who founded the firm in 1980, has been named founding and executive chairman. Edward N. Cooper, CPA, has been named director-in-charge of the tax services practice, the role formerly held by Saka.
“This is an exciting time for our firm,” said Berkowitz. “Joe has proven to be an innovative thinker, a leader and a steward of the firm’s culture since joining us eighteen years ago. Our entire team is enthusiastic about Joe leading the firm and our transition to a new generation of leadership.”
Under Berkowitz’ leadership, the firm has been consistently recognized as a “Best of the Best” firm by Inside Public Accounting and as a Best Place to Work by Florida Trend, both epitomizing Berkowitz’s founding core values for the firm. Known for its real estate, international tax, estate and wealth planning, and business consulting prowess, Berkowitz Pollack Brant is one of the largest firms in Florida and has been a top 100 US firm since 1995. In his new role, Berkowitz will focus on business development, leadership training, campus and lateral recruiting, governance and other special projects.
Saka has led the Tax Services practice since 2010. Clients value his strategic outlook, business acumen and commitment to process improvement. He has served on the firm’s Executive Committee, Management Committee, and Strategic Planning Committee and has been instrumental in making Berkowitz Pollack Brant an Accounting Today Top 100 entity recognized for its outstanding national reputation.
Cooper joined the firm in 2012 and focuses his practice on real estate consulting, complex partnership structuring and corporate tax planning. He will lead the firm’s seventy-five member tax practice, including continued expansion of services, process improvement and efficiencies, and client service teams.
“We advise many of our entrepreneurial clients on succession planning issues and we are proud to be implementing our succession plan after nearly five years of process,” Berkowitz continued. “I am so proud to introduce Joe and Ed in their new roles and to support their efforts in leading the firm into continued success.”
About Berkowitz Pollack Brant Advisors and Accountants
For nearly 40 years, the advisors and accountants of Berkowitz Pollack Brant have solved problems, provided knowledge and helped clients realize their potential. The firm and its affiliates Provenance Wealth Advisors and Orion/BayBridge Real Estate Group have offices in Miami, Ft. Lauderdale, Boca Raton, Palm Beach and New York City.
Berkowitz Pollack Brant has been named one of the top 100 firms in the U.S. by both Accounting Today and INSIDE Public Accounting and has been named one of Florida Trend’s Best Places to Work for five consecutive years.
One of the largest firms in South Florida, it is comprised of 220 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.
The IRS this month issued temporary regulations that will give taxpayers who incurred losses from a federal disaster area an additional six months to claim those losses on their federal tax income tax returns.
Under Section 165 of the Internal Revenue Code, taxpayers may elect to deduct losses incurred from a federally declared disaster area. These casualty losses are typically deductible only for the taxable year in which the disaster and resulting damages occur or for the taxable year immediately before the year in which the disaster occurred, as long as the election is made by filing a return, an amended return, or a claim for refund on or before the later of (1) the due date of the taxpayer’s income tax return (determined “without” regards to any extensions) for the taxable year in which the disaster actually occurred, or (2) the due date of the taxpayer’s income tax return (determined “with” regards to any extensions) for the taxable year immediately preceding the taxable year in which the disaster actually occurred.
Effective immediately, a taxpayer will have six months after his or her original federal tax return due date of the year following a disaster to make a 165(i) election. That means that a taxpayer whose 2016 federal income tax filing deadline is April 15, 2017, will have until October 15, 2017, to deduct casualty losses incurred in 2016.
The taxpayer does not need to request an extension of time to file a federal tax return for the disaster year in order to benefit from the extended due date. In addition, under the newly issued Revenue Procedure 2016-53, taxpayers will receive an additional 90 days after the April federal tax deadline to revoke a 196(i) election for the previous year. According to the IRS, these filing extensions will provide taxpayers affected by storms, flooding, fires or other natural disasters more time to recover and decide whether they choose to make the election, without waiting for the IRS to respond to federal disaster declarations and extend filing deadlines.
Taxpayers who experiences losses due to a disaster should reach out to their accountants to understand their tax filing rights and responsibilities, to quantify damages to property and interruption of business operations losses and to identify opportunities to qualify for a casualty loss deduction.
About the Author: Angie Adames, CPA, is an associate director in 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 at the firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.
Each year, the IRS announces annual inflation adjustments for more than 50 tax provisions. Following are the cost-of-living updates that taxpayers should begin planning for in 2017, which will apply to the tax returns that they will file in 2018.
Tax Rates. The highest tax rate of 39.6 percent will apply to individual taxpayers whose income exceeds $418,400, or $470,700 for married couples. The IRS has adjusted the tax thresholds for the other marginal rates as well.
Standard Deduction. The standard deduction for married couples filing jointly will increase $100 in 2017 to $12,700. Single taxpayers and married couples filing separately will get a $50 increase for a 2017 standard deduction of $6,350. Similarly, the standard deduction for heads of household will increase to $9,350 in 2017, compared with $9,300 in the prior year.
Income Limit for Itemized Deductions. Itemized deductions for taxpayers whose 2017 adjusted gross income exceeds $261,500 for single filers, or $313,800 for married couples filing jointly, will be limited to an amount equal to the lessor of 3 percent of the amount for which their adjusted gross income exceeds the limit or 80 percent of itemized deductions, including charitable donations, home mortgage interest and state and local tax deductions. Excluded from this list of Peace limitations are medical expenses, investment interest, gambling losses and casualty or theft losses.
Kiddie Tax. Children under the age of 19 and college students under the age of 24 with unearned net income of $1,050 for less during the 2017 tax year may escape federal income taxes on that amount. Unearned income in excess of $2,100 will be taxed to the child at the parent’s tax rate.
Personal Exemptions. The personal exemption amount for the 2017 tax year will remain at $4,050 and is subject to a phase-out with adjusted gross incomes of a higher $261,500 for single taxpayers, or $313,800 for married couples filing jointly. Exemptions will phase out completely for taxpayers with annual income of $384,000, or $436,300 for married couples filing jointly.
Alternative Minimum Tax Exemption. The Alternative Minimum Tax (AMT) exemption for the 2017 tax year increases to $54,300 for single taxpayers, or $84,500 for married couples filing jointly. The AMT exemption will begin to phase out for taxpayers with income of $120,700, or $160,000 for married couples filing jointly.
Estate and Gift Tax Exemptions. Estates of decedents who die in 2017 will be able to exclude from estate taxes $5.49 million in assets, up from $5.45 million in 2016. For married couples, the exclusion amount will be $10.98 million. The annual gift tax exclusion remains at $14,000.
Foreign Earned Income Exemption. The foreign earned income exclusion for the 2017 tax year increases to $102,100 in 2017, up from $101,300 in 2016.
Contributions to Qualified Retirement Plans. The maximum amount retirement savers may contribute to an employer-sponsored 401(k), 403(b) and most 457 plans in 2017 will remain at $18,000. Catch-up contributions for employees over age 50 will also be unchanged at $6,000 (for a total of $24,000) for 2017.
Contributions to Traditional and Roth IRAs. Taxpayers may contribute up to $5,500 to an Individual Retirement Plan (IRA) or Roth IRA in 2017, the same amount as in 2016. Catch-up contributions for taxpayers over age 50 will remain at $1,000 (for a total of $6,500). Tax deductions on traditional and Roth IRA contributions are subject to phase out rules based on the taxpayer’s income and filing status.
Contributions to SEP IRAs and Solo 401(k)s. Self-employed and small-business owners can save $54,000 in a SEP IRA or solo 401(k) in 2017, up $1,000 from 2016 . Contributions to SIMPLE retirement accounts remain at their 2016 limit of $12,500 for 2017.
As 2016 nears its end, taxpayers should meet with their accountants to identify last-minute tax-savings opportunities while preparing for tax efficiency in 2017.
About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director in 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 at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.
