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Monthly Archives: May 2017

Do You Know the Tax Implications of Selling Your Home? by Nancy Valdes, CPA

Posted on May 30, 2017 by

Spring is a common time for families to consider moving. As one school year comes to an end, there is usually ample time during the summer months for families to move into new homes before the start of a new school year in the fall. Selling one’s family home, however, comes with some important tax considerations that homeowners should keep in mind.

 

Taxes on Gains. Typically, individuals pay income taxes on profits they earn. However, the IRS provides an opportunity for taxpayers to exclude from their taxable income all or a portion of a gain from the sale of a primary residence. To qualify for this benefit, the taxpayer must have owned the residence and lived it in as their main home where they spent the majority of their time for at least two of the five years prior to the date of sale. Interestingly, the two-year time period does not have to be consecutive. Rather, individuals must consider if they lived in the home for any 24 months of time during the prior five years. Therefore, individuals who split their time between two homes may only avoid taxation on the sale of the one property where they live most of the time.  Exceptions to these ownership and use rules apply to members of the military and to individuals who have a disability.

 

Maximum Exclusion Amount. The most an individual selling his or her home may exclude from tax is $250,000, or $500,000 for married taxpayer who file joint tax returns.

 

Qualifying for a Partial Exclusion. If a taxpayer does not meet the ownership and use rules required for the maximum exclusion on the gain of a home sale, he or she may qualify for a partial exclusion only when the sale is due to work or health reasons or certain other unforeseeable circumstances, such as the birth of multiple children, a divorce or death of a spouse.

 

Disqualification from Exclusion. Taxpayers may be automatically disqualified from using the exclusion either when they acquired a home through a Section 1031 like-kind exchange during the past five years, when they are subject to an expatriation tax, or when they claimed any exclusion for a gain on a home sale that occurred during the two years prior to the current sale.

 

Reporting Requirements. When the gain on a home sale is not taxable, taxpayers may avoid reporting the sale on their annual tax returns. Anytime taxpayers do not exclude all of a part of the gain they must report the sale, which may also trigger a 3.8 percent Net Investment Income Tax on the gain.

 

What about Losses? Taxpayers who sell their homes at a loss cannot deduct the loss on their tax returns.

 

Report your Address Change. After selling a home, taxpayers should immediately update their addresses with insurance providers, professional advisors, banks and financial institutions, and others. In addition, sellers can alert the IRS by completing and filing IRS Form 8822, Change of Address.

About the Author: Nancy M. Valdes, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she focuses her practice on tax strategies for business owners and high-net-worth individuals and families. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

 

 

Foreign Investors Get More Time to Apply for EB-5 Visa Program by Andrew Leonard, CPA

Posted on May 25, 2017 by Andrew Leonard

On May 4, real estate developers and wealthy foreign investors received good news from the U.S. government, which extended the EB-5 visa program until September 30, 2017. The controversial program provides foreign investors and their families with an expedited path to U.S. citizenship in return for a $500,000 minimum investment in a U.S. project that creates or preserves at least 10 permanent jobs.  After two years, investors can petition the government for permanent U.S. residency.

 

In 2016, the U.S. approved more than half of the 14,000 EB-5 visa applications it received from foreign investors, most notably from China and South Korea. While the program has indeed provided developers with billions of dollars in capital required to finance properties, including luxury condominiums in major metropolitan areas, some lawmakers believe that the program has failed to meet its initial objective of increasing economic development in depressed areas with high levels of unemployment. Moreover, due to multiple instances of fraud and abuse, the program has faced intense scrutiny from opponents who have called for significant changes, including raising the minimum investment amount, improving oversight to minimize investor risk, redirecting foreign investment to infrastructure improvements even eliminating the program completely.

 

With the five-month extension of the EB-5 program, lawmakers hope to have enough time to come to a consensus on reform while the backlog of visa applications continue to grow. In the meantime, foreign individuals considering immigration to the U.S. should plan ahead under the guidance of experienced accountants, financial planners and attorneys to avoid risks and ensure compliance with the U.S’s complex tax, investment and immigration laws.

 

About the Author: Andrew Leonard, CPA, is an associate director with Berkowitz Pollack Brant’s International Tax Services practice, where he focuses on pre- and post-immigration tax planning for individuals from South America, Asia and Europe and helps U.S. residents with foreign interests meet their filing disclosure requirements. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.

IRS Updates Guidance on Section 179 Deductions for Business Equipment by Angie Adames, CPA

Posted on May 24, 2017 by Angie Adames

For the 2017 tax year, eligible businesses may take what is referred to as a Section 179 deduction for up to $510,000 in costs incurred to acquire qualifying equipment and property used in a trade or business. That amount, which is adjusted annually for inflation, is reduced dollar-for-dollar by all Section 179 property put into place exceeding $2.030 million during the tax year. In addition, taxpayers should be aware of the IRS’s most recent guidance clarifying the Section 179 deduction, which takes effect during the current year.

 

Bonus Depreciation

Businesses that meet taxable income thresholds and purchase more than $2 million in “qualified property” that improves the interiors of nonresidential buildings that have already been placed in service may take a 50 percent first-year bonus depreciation when those assets are put into service in 2015 through 2017.

 

Under the IRS’s most recent guidance, qualifying property excludes improvements that enlarge a building or change its internal structural framework. In addition, the IRS clarified that to qualify for bonus depreciation, a building’s original “placed in service date” may be as recent as one day prior to the commencement of improvements.

 

The IRS also established that the amount of first-year depreciation will be gradually reduced from 50 percent in 2017 to 40 percent in 2018, and 30 percent in 2019. Therefore, businesses may consider making purchases this year to benefit from the additional immediate deduction that may not be available to them in subsequent years.

 

Air Conditioning and Heating Units

In its most recent guidance, the IRS noted that taxpayers may expense portable air conditioning and heating units put into service after 2015 that qualify as Section 1245 property that is “used in the active conduct of a taxpayer’s trade or business” and “is or has been subject to an allowance for depreciation or amortization.”  Excluded from an eligible depreciation deduction are the components of a building’s central air conditioning and heating systems, such as pipes and compressors.

 

Revoking Section 179 Elections

Taxpayers are not required to obtain permission from the IRS to withdraw a Section 179 election they made after 2014; rather, they may revoke the election by simply filing an amended tax return with the IRS.

 

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

 

Upcoming 2017 Tax Deadlines

Posted on May 20, 2017 by Richard Berkowitz, JD, CPA

May 1: Deadline for Florida businesses to file annual reports with the state

May 15: Deadline for Exempt Organizations to file annual returns on Forms 990 or 990-EZ, or receive an automatic six-month extension to file by November 15

June 15: Due date for individuals and calendar-year corporations to make 2017 second-quarter estimated tax payments

June 15: Deadline for U.S. citizens or resident aliens living and working outside the U.S. and Puerto Rico, including members of the U.S. military, to file 2016 income tax returns (Form 1040 and 1040NR) or request a four-month filing extension to file by October 16. Applicable taxes were due on April 18.

July 31: Deadline for calendar-year Employee Benefit Plan sponsors to file Forms 5500, 5500-EZ or 5500-SF, Annual Return/Report of Employee Benefit Plan, or receive an automatic extension to file on November 15

July 31: Due date for businesses to file second-quarter 2017 payroll tax returns and federal unemployment tax

September 15: Due date for individuals and calendar-year corporations to make 2017 third-quarter estimated tax payments

September 15: Deadline for partnerships and S-Corporations, that in March had requested a six-month extension, to file their annual 2016 tax returns and provide shareholders with Schedule K-1s

September 15: Deadline for trusts and estates, that in April had requested a six-month extension, to file their annual 2016 tax returns

October 15: Deadline for individual taxpayers and corporations, who in April requested a six-month filing extension, to file their 2015 income tax returns

October 15: Extended deadline for calendar-year Employee Benefit Plan sponsors to file annual tax returns, if they took advantage of an automatic filing extension in July

October 15: Extended deadline for taxpayers with foreign financial accounts to file FinCEN Report 114

November 15: Extended deadline for exempt organizations to file 2016 tax returns, if they took advantage of an automatic filing extension in May

Hurricane Season is Here. Is your Business Ready? by Daniel S. Hughes, CPA

Posted on May 18, 2017 by Daniel Hughes

With hurricane season upon us, businesses in South Florida and all along the east coast should have an emergency plan in place to safeguard their organizations before and after a disaster occurs.

What types of situations can impede normal business operations? How can a business protect itself from these events, which may include power outages, burst water pipes, server failures, data hacks, fires, floods or acts of nature? How can a business mitigate its losses following a disastrous event? What does the business need to do to recover in a timely manner, if recovery is even possible?

Answering these questions in advance of a potential threat can help businesses be better prepared to act quickly and reduce their risks of interruptions in normal business operations. Following are a few critical factors businesses should consider when preparing a business continuity and disaster-recovery plan.

Employees. How will a business communicate with its workers and their family members during and after a disastrous event? Which business functions and staff members will be required during the preparation and recovery periods?

Businesses should maintain up-to-date contact information for all of their employees and put into place a system for sharing information with them. In the wake of recent disasters involving power outages and overloaded telephone networks, text messaging has proven to be an effective communication tool. In addition, businesses should ensure that critical employees know their roles and responsibilities to carry out the business’s emergency plan. Similarly, the business should be prepared to assign backup staff to cover for those workers who may be unreachable or unable to return to work following a perilous event.

Customers. Businesses that cannot respond to customers’ immediate needs are likely to lose those customers. To build trust and loyalty, businesses should communicate their emergency plans to customers before disasters strike and have in place a plan for communicating with them and providing them with alternative arrangements in the wake of a disaster.

Suppliers and Vendors. Interruptions in the supply chain can cripple a business when its vendors or suppliers are unable to deliver required services, products and materials. As a result, businesses should first consider whether or not their existing suppliers have business-continuity plans in place and whether such plans should be a requirement of their working relationships. In addition, businesses should have at the ready a backup list of pre-vetted suppliers who can step in to fulfill their orders in a timely manner.

Critical Business Functions. What activities are vital to a business’s survival? Critical business functions include those assets that are required to resume operations and those activities whose interruption will result in a loss of revenue and noncompliance with industry and governmental regulations. Businesses must prepare contingency plans in the event a disaster debilitates these functions.

Documents and Data. All businesses should have backup systems in place to retrieve and restore data in order to resume normal operations. This may include keeping duplicates of important records off-site, downloading them onto portable storage devices, such as external hard drives, or saving them to cloud-based applications. Similarly, businesses should regularly update their accounting and operational data, including records of inventory and sales as well as forecasts of future performance, in order to quantify and substantiate incurred losses.

Insurance. Property insurance typically covers costs to repair physical damage. Companies located in regions that are prone to hurricanes, earthquakes, tornadoes or floods should also consider investing in business-interruption insurance to cover the potential loss in income due to an inability to continue normal operations in the aftermath of a covered catastrophe. In fact, in today’s environment of frequent cyberattacks and data breaches, weather conditions and natural disasters are far from the only factors that can impede business operations and lead to monetary and reputational losses. Business interruption insurance helps organizations mitigate these losses and quantify and substantiate claims of lost earnings.

The professionals with Berkowitz Pollack Brant’s Forensic Accounting and Business Insurance Claims practice have more than three decades of experience helping organizations of all sizes and in all industries prepare for and maximize financial recovery from insured perils.

About the Author: Daniel S. Hughes, CPA/CFF, CGMA, is a director in Berkowitz Pollack Brant’s Forensics and Business Valuation Services practice, where he helps companies of all sizes assess 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 dhughes@bpbcpa.com.

Global Ransomware Attack – Are You Protected from the Next One?

Posted on May 15, 2017 by

On May 12, 2017, a global ransomware attack named WannaCry impacted businesses, governments and individuals in more than 150 countries.  Luckily the damage it could have caused was limited with quick thinking by an IT pro.

Ransomware is malicious software that blocks data owners from accessing their own systems and data.  Once criminals have control of a person’s or organization’s systems and data, they demand payment to return them.

Trend Micro’s “2016 Security Roundup: A Record Year for Enterprise Threats” report found that cyber threats grew by 752 percent in 2016, with ransomware and Business Email Compromise (BEC) scams leading the charge, resulting in $1 billion in losses for organizations worldwide.

Here are some ways you can protect yourself and your organization from ransomware

  • Install and maintain antivirus software on servers and computers
  • Ensure server patches are up-to-date and that you have processes updated in a timely manner
  • Implement strong and effective password controls
  • Establish effective online and website controls, including pop-up blockers and preventative controls for downloading software
  • Restrict the ability to open email attachments, and ensure that all attachments are scanned and properly handled
  • Conduct regular system back-ups and store the backed-up data offline
  • Ensure that data is properly classified and protect it accordingly
  • Perform periodic IT risk assessments to evaluate the IT environment, identify gaps and risks, and develop and implement remediation controls

Berkowitz Pollack Brant’s consulting group includes information-technology experts who have experience in establishing and implementing safety protocols, conducting IT risk assessments and advising on protection measures. Please contact Sean Chari or Steve Nouss at (954) 712-7000 if our team can be of assistance.

 

 

Small Businesses Gain Multiple Benefits with Cloud Accounting Systems by Laurence Bernstein, CPA

Posted on May 12, 2017 by Laurence Bernstein

Accounting is a crucial component to business success. It demonstrates how money flows in and out of an organization and provides a basis for end-of-year tax planning.  However, business owners should neither underestimate the value that regular bookkeeping can bring to their profitability and future earnings nor should they ignore the countless opportunities they may have to leverage to modernize and improve these processes.

The once painstaking process of maintaining accurate financial records on a desktop computer located in a physical office building is today much simpler and easier to maintain, thanks to accounting software, such as QuickBooks Online, Xero and Freshbooks for small business, or Net Suite, Intacct and Microsoft Dynamics for larger organizations. These cloud-based solutions automate accounting processes and reduce the need for businesses to hire staff with accounting skills to manage them. Moreover, in today’s 24/7 on-demand society, a business’s stakeholders can access and manage important financial data at any time and at any place with the click of a button on mobile devices.

Cloud-based accounting systems are the future, and the future is here. By combining the following benefits of these services with the expertise of qualified accountants, business owners can gain accurate insight about their operations’ financial picture before making critical business decisions.

Improve Organization and Productivity

Accounting software eliminates the need to spend time searching through files and pages of data to find financial and operational data, such as when a specific payment was received, a bill was paid or a piece of equipment was purchased.  These solutions organize information in an intuitive and systematic manner that makes it easy for users to find what they are looking within seconds.

Access Real-Time Financial Data

Cloud-based accounting software connects seamlessly to a business’ bank and credit card accounts and automatically imports data to sync in real-time with recorded transactions. This eliminates the need for manual entry of bank deposits, payments, purchases and withdrawals, and helps to improve recording accuracy by automatically populating financial transactions in the general ledger. Moreover, these platforms are constantly evolving and adding new features that they automatically update to end users’ desktops, laptops and mobile devices.

Improve Business Process Efficiency

Accounting platforms can easily integrate and share data with other cloud-based business management applications, such as Bill.com, which manages account payables and receivables; Tallie for automating employee expense reports; Tsheets for tracking employee time and automating payroll processes; as well as a wide-range of inventory and sales-force management solutions. With these and other add-on applications, businesses can sync relevant data back to their accounting software and create powerful and efficient solutions for managing all of the core systems that make up their general ledger. Users may also employ trend analysis and analytic reporting features to gain further insight into their businesses’ financial picture, and they may deploy this information to share with key stakeholders, including members of the management team, employees and professional accountants.

Store and Access Backup Data Safely

No business is immune from computer failures or natural disasters, including hurricanes, which can wipe out data stored in file cabinets, on desktops and even on backup systems.  However, with cloud-based solutions, businesses have the security of knowing their data is stored and easily accessible on the internet rather than on a computer’s hard drive, which is susceptible to damage. Business owners need only an internet connection to access general ledgers, financial statements, budgets and forecasts required to sustain operations and substantiate any insurance claims for accidental loss of data.

Even with all of the conveniences that cloud-based accounting solutions provide, business owners should still meet with their accountants on a regular basis – not just at tax time.  By combining technological solutions with face-to-face professional counsel, owners can ensure their businesses are on track and are flexible enough to manage challenges and take immediate advantage of opportunities that can lead to future growth.

About the Author: Laurence Bernstein, CPA, is an associate director in the Tax Services practice of Berkowitz Pollack Brant, where he provides tax and consulting service to high-net-worth families, entrepreneurs and privately held business owners.  He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

 

 

IRS Penalty Relief Program Comes with a Catch by Jeffrey M. Mutnik, CPA/PFS

Posted on May 10, 2017 by Jeffrey Mutnik

There is a well-known proverb: to err is human; to forgive, divine.  As humans, we do err from time-to-time.  Contrary to popular belief, the IRS understands that everyone makes mistakes. Therefore, the agency will grant certain taxpayers a one-time waiver from penalties if they fail to timely file returns or pay and deposit tax liabilities.

This First-Time Penalty Abatement waiver applies only to those taxpayers who have not incurred penalties (with the exception of an estimated tax penalty) for the prior three years, and who in failing to meet a current filing obligation, have come to agreement with the IRS to pay outstanding tax liabilities. Under the Internal Revenue Code, taxpayers who fail to file their annual returns 60 days after the (extended) due date face a minimum penalty that could be as much as $205 or an amount equal to 5 to 25 percent of unpaid taxes, whichever is greater. Failing to pay one’s tax liabilities will result in an additional 0.5 percent penalty of the unpaid amount each month for up to 50 months, which could amount to a maximum penalty of 25 percent. Unpaid tax/penalty liability will incur an interest charge, which cannot be abated.

Taxpayers who apply for the First-Time Abatement Relief program and receive leniency must remember that they will still incur interest charges on unpaid taxes and any penalties until they pay their tax bill in full. In addition, according to a recent tax court ruling, the three year statute of limitations for assessing taxes does not apply to a taxpayer’s failure-to-pay penalty. Instead, the IRS has 10 years to collect on a failure-to-pay penalty and interest will continue to accrue on this amount until the taxpayer pays the outstanding amount in full.  Presumably, this 10 year period also applies to late filing penalties abated under the program.

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.

Work from Home? The IRS Wants to Help You by Angie Adames, CPA

Posted on May 08, 2017 by Angie Adames

Under the Internal Revenue Code, taxpayers who work from their homes may be able to deduct certain expenses related to the business use of their residence, regardless of whether they own the property or rent it from another party. These deductions, for items that can include mortgage interest, insurance, utilities, repairs, and depreciation, help to reduce an individual’s taxable income. The challenge, however, is determining whether or not a taxpayer qualifies for this benefit.

 

Am I Eligible for a Home Office Deduction?

Generally, taxpayers will be eligible for the home office deduction when they use their homes or a portion of their homes “regularly” and “exclusively” for business purposes. In other words, the residence must be the primary location where the taxpayer conducts a “substantial” amount of his or work, including meeting clients or patients. It cannot be the location where an individual works occasionally as part of convenient flex time or other alternative work arrangement established by an employer. However, an employee of a business may claim the home office deduction when he or she works at home for the convenience of the employer and when he or she does not rent any portion of the home to the employer.

 

How do I Calculate the Home Office Deduction?

The IRS offers taxpayers two methods for calculating the home office deduction. For both options, the allowable deduction is limited when gross income from the business use of the home is less than the expenses.

 

Simplified Option. Multiply the square footage of the office space, up to a maximum of 300 square feet, by a rate of $5 to figure the allowable deduction. This is the easiest, least time-intensive method of calculating the deduction

 

Regular Method. First, measure the size of the office space as a percentage of the total square feet of the home. Then, add up deductible expenses, which can include utilities, taxes, mortgage interest, and depreciation. The potentially allowable deduction is the percentage of expenses that correlate to the percentage of the home devoted solely for business use. In addition, taxpayers should note that there is a net income limitation, for which home office expenses cannot exceed the gross income from the business less all other ordinary business expenses.

 

What Expenses Can I Deduct?

Taxpayers using the regular method of calculating the home office deduction must classify expenses into either direct expenses or indirect expenses. Direct expenses are those incurred specifically for the business portion of the home, including painting or making repairs to the office space.  Indirect expenses are those related to the entirety of the home where business in conducted, including insurance, utilities and general repairs. However, these expenses are deductible only up to the percentage of the home that is used for business purposes. Moreover, taxpayers should understand that the IRS will not allow certain home maintenance costs to qualify as deductible home office expenses. These nondeductible costs can include such services as lawn care, landscaping, and cleaning.

 

Self-employed home-based workers should also note that they may only deduct these business expenses during the portion of the year in which they used their home for business purposes. For example, a business that is established and meets the tests to qualify for the home office deduction on October 1 of a calendar year, may only deduct expenses incurred from that date until December 31 of that year.

 

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

 

6 Strategies to Help Businesses Prepare for New Lease Accounting Rules by Whitney K. Schiffer, CPA

Posted on May 03, 2017 by Whitney Schiffer

Time is ticking away for businesses with operating leases to comply with new lease accounting standards that were issued a little more than a year ago by the Financial Accounting Standards Board (FASB). While the deadlines for public and private companies to implement the new rules is at least a year away, significant time and efforts will be required for most businesses to come into full compliance.

At the core of the new lease accounting standard is the way in which businesses account for and record on their balance sheets all assets and liabilities related to operating leases with terms greater than 12 months. Specifically, lessees will be required to disclose details concerning operating-lease transactions, including information about variable lease payments and options to renew and terminate leases. In addition, lessees will be permitted to make accounting-policy elections to exclude recognition of assets and liabilities relating to leases with terms of 12 months or less.

Under the current lease rules, businesses do not need to include operating leases on their balance sheets. Rather, they must reference these obligations only as footnotes on financial statements. As a result, businesses’ financial statements often exclude the true value of the entities financial performance, including their assets, credit risk and operating efficiency. Under the new rules, a business’ financial statements will materially reflect all lease transactions and will significantly change the way a business reports to stakeholders its performance, including its cash flow, net income and earnings before interest, tax, depreciation and amortization (EBITDA). Businesses will record a right-of-use asset and the corresponding lease liability on their balance sheets, measured at the present value of the lease payments. Additionally, they will record amortization of the right-of-use asset on their income statements, generally on a straight-line basis over the lease term.

Adapting to the new lease standard will be a time-intensive and perhaps arduous process that will require businesses to track down information about existing leases, project the potential impact they will have on financial reporting in the future, and establish new policies, procedures and systems to monitor lease transactions going forward. Complicating compliance to these new rules is a sea of additional new accounting standards that businesses must implement in the next few years, including, but not limited to, those related to recognizing revenue from contracts with customers, testing for goodwill impairment, measuring credit losses, and classifying cash receipts and cash payments. To ease this heavy burden, businesses must prioritize their efforts and consider the following tips specifically tailored to begin transitioning to the new lease accounting standard.

Six Ways to Prepare for Lease Accounting Rule

  1. Assemble a Team to Develop a Plan. Rather than diving into the new lease standards head first, businesses should take time to understand what is involved and how the new reporting rules will affect them. One of the best ways to do this is to establish a project management team that includes external and internal accounting and legal professionals, as well as key corporate managers, including those from IT, real estate, transportation and other business units. The ultimate goals of this team approach would be to develop a project transition plan, budget and timeline for implementation, tracking progress and taking steps to address any and all stumbling blocks that may occur along the way.
  2. Assess the Current Lease Environment and its Impact on Future Lease Reporting. Substantial time and effort may be required for businesses to identify all of their existing leases and the detailed terms and conditions and rights and responsibilities of those agreements. For example, the new standard for lease reporting will require businesses to recognize assets and liabilities for all leases with terms of 12 months or longer; shorter-term leases may avoid reporting requirements if the lessee does not expect to buy the asset(s) in the future. In addition, businesses will have the potentially complicated task of differentiating between reportable operating leases and service contracts, which they are not compelled to recognize on financial statements. In many situations, a business may uncover that an existing contract for real estate, equipment or other property meets the new definition of a lease and must be reflected in its financial reporting under the new guidance or it may recognize that the existing systems it uses to track leases will not suffice in the future. With these discoveries, a business may decide to renegotiate existing leases or forgo leasing altogether in favor of buying assets in the future, or it may decide to invest in a new system for tracking and monitoring leases in the future.
  3. Assess How the New Lease Standard Will Affect How the Business Communicates its Financial Performance.  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, cash flow and balance sheet ratios they report may be different than in prior years. This may present an equally significant difference in how businesses communicate their financial positions and operating efficiencies to investors, lenders and other stakeholders. 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. Businesses should consider developing a plan that details how they will communicate these changes to lenders and other stakeholders in advance of the implementation deadline in order to avoid surprises and any adverse reactions.
  4. Invest in New Systems, Technology and Training to Record and Report Lease Arrangements.  Due to the expanded disclosure requirements of the FASB’s new leasing standard, businesses will need more robust systems for capturing and reporting the details of their current and future lease contracts. This is especially true for business that have large portfolios of lease assets, for which software and other technology platforms may be the most efficient option for automating these processes in the future. For some businesses, this may be accomplished by simply working with vendors to update existing software; for others, it may require significant investment in new technology and training.
  5. Update Policies, Procedures and Internal Controls. Under the new lease reporting standard, businesses will need to differentiate between capital or finance leases and operating leases and report the expenses, cash flow and impact of both types of leases on companies’ assets, liabilities and shareholder equity. This could be a daunting task for businesses with large portfolios of lease assets. Not only will they need to develop new policies for classifying leases, they would also need to establish internal controls for monitoring, updating and analyzing lease data in a timely manner.
  6. Prepare for Comparative Reporting.  The new lease accounting standards require a modified retrospective transition, for which businesses will need to apply the new guidance at the beginning of the comparative year. During the first year of compliance, businesses must provide comparative reporting on financial statements to reflect those operating leases that they previously did not account for on their balance sheets. With this retrospective reporting requirement, businesses will likely present on their financial statements significantly different assets, liabilities, income, cash flow and creditworthiness than in prior years.

Preparing for the new lease accounting rules is a monumental task that will require businesses of all sizes and in all industries to expend significant amounts of time, resources and dollars in advance of the December 15, 2018, deadline for public companies, and December 15, 2019, for privately held entities.  By engaging experienced and knowledgeable auditors and accountants in the process, businesses may ease their compliance burdens and come away with new opportunities for improving their internal controls and long-term financial performance.

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

 

 

Gambling with Taxes by Rick Bazzani, CPA

Posted on May 02, 2017 by Rick Bazzani

Individual taxpayers who gamble for pleasure are subject to federal income taxes on their winnings. This includes not only the monetary spoils earned from playing lotteries or betting at casinos but also the fair market value of non-cash prizes, such as cars and trips. Similarly, individuals who are not so lucky may have an opportunity to deduct gambling losses from taxable income up to the amount of their gambling income.

Reporting gambling income and losses requires taxpayers to keep track of their lucky streaks and maintain appropriate records, including logs of winning and losses and copies of receipts and tickets. When winnings exceed certain amounts, the payer is required to provide the gambler with a copy of Form W-2G, which it also issues to the IRS.

 

For example, it is customary for a payer to issue a Form W-2G to taxpayers with winnings of $600 or more for which the payouts are at least 300 times the amount of their wagers. New for 2017 are higher thresholds for winnings related to slot machines, Bingo and Keno.

 

Winnings of $1,200 or more from one bingo game, without a reduction for the amount wagered.
Winnings of $1,200 or more from one play of a slot machine, without a reduction for the amount wagered
Winnings of $1,500 or more from one game of Keno, which is reduced by the amount wagered on the same game
Gambling winnings as reportable as “other income” on IRS Form 1040 of an individual’s personal tax return. Losses, however, are reported on Schedule A, Itemized Deductions.

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.

 

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