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Monthly Archives: July 2017

Save on Back-to-School Supplies during Florida’s August Sales Tax Holiday by Karen A. Lake, CPA

Posted on July 31, 2017 by Karen Lake

Florida families preparing for the beginning of another school year should plan their back-to-school shopping during the state’s sales tax holiday weekend, which runs Friday, August 4, through Sunday, August 6. Public schools in Miami-Dade and Broward counties begin on August 21, and one week earlier for Palm Beach County.

During the sales-tax holiday, Florida residents can reap substantial savings on purchases of a wide variety of back-to-school items without paying state and local sales tax. This includes in-store and online purchases of clothing and shoes that cost $60 or less; notebooks, pens, backpacks and other supplies costing $15 or less each; and, new for 2017, computers and accessories costing $750 or less each. For more details, visit the Florida Department of Revenue’s website at

About the Author: Karen A. Lake, CPA, is an associate director in the Tax Services practice of Berkowitz Pollack Brant and a SALT specialist who helps individuals, businesses and non-profit entities navigate complex federal, state and local taxes, credits and incentives. She can be reached at the firm’s Miami office at (305) 379-7000 or via email at


6 Financial Lessons after Landing your First Job by Joanie B. Stein, CPA

Posted on July 25, 2017 by Joanie Stein

Congratulations! You graduated college, secured a job, and are entering the real world of financial independence. Before forging ahead and spending your first paycheck, you should take some time to understand some basic lessons in financial responsibilities that you probably did not learn in school.

Lesson 1: You Owe the Government Money

In general, any money a U.S. citizen or resident earns is considered taxable income, which they must report to the Internal Revenue Service (IRS) every year on April 15th. The amount of taxes an individual will owe depends on various factors, including, but not limited to, his or her gross salary, marital status and investment income.

The taxes you pay to the government are used to fund the Social Security and Medicare benefits programs for you and to keep the country running. Common government expenses include maintaining the military, building roads and railways, and providing citizens with public school education, police enforcement, public transportation and even government-provided healthcare for those in need.

Lesson 2: Your Paycheck will be less than you Expect

U.S. income taxes are based on a pay-as-you-go system that relies on employers to withhold taxes from workers’ wages and pay those amounts directly to the government on behalf of employees.

Social Security and Medicare taxes are based on fixed rates set by the government, while the amount of federal income taxes deducted from an individual’s paycheck is determined by the information the worker provides on IRS Form W-4, Employee’s Withholding Allowance Certificate. In addition to asking for basic information, such as an individual’s social security number, the W-4 will also require you to claim “personal allowances,” which will adjust the amount withheld from your pay. The fewer dependents you claim, the higher the amount your employer will withhold from your paycheck.

Individuals who expect to earn more than $6,350 in 2017 may claim themselves as one dependent. Workers who are students, under age 25, earning less than $6,350, and claimed as dependents’ on their parent’s tax returns may either 1) claim no allowances and have the maximum tax withheld from their pay, or 2) they may check a box to be exempt from withholding and have no money deducted from their wages, only if they have income of no more than $1,050, including more than $350 in unearned income from investment interest, dividends and gains.

Lesson 3: You Probably have an Obligation to File a Tax Return

If you earn more than $6,350 in 2017 and claim at least one allowance, you should plan to file an individual tax return using IRS Form 1040 in April 2018. If not enough income taxes were withheld from your pay, you may owe the government money. If too much was withheld, you may receive money back from the government next year. While many people compare a tax refund to an unexpected and welcome lottery winning, the fact is that too much money was taken from their pay, and they missed out on an opportunity to invest that money and benefit from compounding interest.

Lesson 4: Your Employer’s 401(k) Savings Plan Can Mean Free Money to You

Retirement is probably the last thing individuals think about when starting their first jobs. However, failing to participate in an employer’s 401(k) retirement savings plan could mean losing out on significant tax benefits and potentially free money that will grow with compounding interest in the future.

Through these plans, workers elect to defer a portion of their salaries toward retirement savings. The deferred amount is automatically subtracted from workers’ pay and removed from their taxable income, which could lower their current year tax liabilities. As long as workers keep their money invested in 401(k) plans, their savings, including dividends, interest, and gains, may continue to grow free of federal income taxes.

For 2017, the maximum amount of pre-tax dollars that workers may contribute to an employer’s 401(k) plan is $18,000. While this may seem like a lot of money to deduct from a modest first-year salary, workers should at the least contribute enough to qualify for an employer’s matching contribution, if one exists.  With a match, for every dollar a worker contributes to a 401(k), his or her employer will contribute an amount up to a set limit.

For example, consider a worker earning $40,000 and receiving a 100 percent match on up to 6 percent of his or her salary. If the worker contributes to his or her 401(K) 6 percent of salary ($2,400 annually) the employer will contribute a match in the same amount ($2,400). Not only will the worker gain an addition $2,400 tax-free on top of his or her current salary, he or she will ultimately yield 12 percent savings for the future.

Lesson 5: Failing to Prepare a Budget, may Prepare You to Fail

Whether you spent your college years relying on financial assistance from the bank of mom and dad or you graduated with significant student loans, don’t allow the excitement of receiving your first paycheck to overshadow the importance of planning a budget to manage your finances.

Calculate how much money you will earn each month, net of taxes, and work backward to determine how much you can afford for basic necessities, such as rent, utilities, transportation, gas, groceries and insurance. Be sure to consider repayments of student loans, contributions to 401(k) plans and building an emergency fund to help you through unexpected and potentially costly obstacles, such as a much-needed car repair. A portion of whatever amount is left over can be allocated to “fun”, including dining out and entertainment, whether it be tickets to a sporting event, concert or other leisurely activity.

Lesson 6: Build Credit and Use it Wisely

Most recent college grads lack a solid credit history, making it challenging for them to secure a credit card or loan in the near future. With a job and verifiable income, you may qualify for a credit card with low spending limits. Alternatively, you may ask a parent to add your name as an authorized user on his or her account.  The important thing to remember is that a credit card is not free money; rather, high interest rates will apply to unpaid balances and the amount you owe can increase fairly quickly making it more difficult to pay off. Instead, use your credit card to pay for your budgeted necessities and be prepared to pay the balance in full and on time each month. Over time, your credit score will increase, and you will be in a better financial position in the future.


Entering the workforce is an exciting time filled with countless opportunities to build and preserve wealth for the future. However, recent graduates should proceed cautiously with full knowledge of the potential pitfalls that can occur with financial independence.


About the Author: Joanie B. Stein, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she helps individuals and businesses implement sound tax-planning strategies.  She can be reached at the CPA firm’s Miami office at (305) 379-7000 or at


It’s Always a Good Time for Tax Planning by Jack Winter, CPA/PFS, CFP

Posted on July 24, 2017 by Jack Winter

Individual and business taxpayers erroneously believe that once they file their returns in April, they can put those documents away in a file cabinet and ignore them until the following year. The fact is that the information contained in an annual tax return can provide an abundance of information about your current financial health and that of your business while also identifying opportunities for building wealth and minimizing future tax liabilities.


Following are five strategies you should consider implementing during any time of the year when you still have time to make measurable improvements to final tax filing on April 15.


Meet with your Accountant

Who knows more about your personal and business finances than your accountant? Not only are these professionals qualified to prepare your tax returns, they are also seasoned advisors with skills required to read between the lines of tax returns and financial statements to identify potential weaknesses that prevent you from reaching your financial goals or optimizing business profits. By meeting with accountants throughout the year, rather than limiting communication to tax season, you may receive guidance needed to implement appropriate strategies to overcome these barriers and achieve tax efficiency.


Get a Mid-Year Tax Check-Up

Individuals and businesses that pay estimated taxes throughout the year should the time to determine if their payments are on target. Tax underpayments may result in significant penalties, whereas overpayments or having too much withheld from one’s paycheck may result in a tax refund come April. The problem with overpaying taxes, however, is that it is essentially an interest-free, short-term loan that you give away to the government. This may leave you short of funds to pay for a surprise emergency, such as a car repair, or it may limit your ability to invest in the public equity market and allow your money to work for you.


Get Organized

The slower summer months are a good time to organize your tax documents and make sure that you have copies of the estimated taxes you already paid as well as receipts to support claims for charitable donations, business expenses and other outlays of money that may be tax deductible.


Consider how Changes in Life or Business Impact your Tax Liabilities and Estate Plans

If you recently got married, became a widow, had a child or moved to another state or country, you can expect a change in your tax liabilities. For example, a marriage or death of a spouse will change your tax-filing status and the amount of taxes you will owe, whereas the birth of a child may require you to change the amount of taxes you previously withheld from your pay. A move across state lines may increase or decrease your income taxes, depending on where you move, and may also expose you and your heirs to state-level estate taxes. Each of these situations should also trigger you to update your records with the IRS and Social Security Administration and to review your estate plan and ensure your named beneficiaries reflect life-changing events and to identify opportunities to reduce your potential tax liabilities in the future.


For business owners, there is a broad range of situations that can impact your tax efficiency as well. As an example, if your business purchased new equipment in 2017, you may be eligible to deduct up to $510,000 of those acquisition costs in the current year rather than depreciating those assets over a period of time. The amount you deduct will be reduced, dollar-for-dollar, by each qualifying Section 179 property exceeding $2.030 million that you put into place during the tax year. In addition, qualifying businesses may be able to claim the added benefit of a 50 percent first-year bonus depreciation on “qualified property” they purchase and put into service in 2017. That’s quite a buying incentive, especially when considering that the amount of first-year depreciation will be gradually reduced in the future to 40 percent in 2018, and 30 percent in 2019.


If you start a new business in 2017, you may be able to deduct up to $5,000 in qualifying startup expenses you paid for items such as advertising, travel, training, and legal and accounting fees. Additionally, certain startup businesses with qualifying research and development (R&D) expenses may be able to apply up to $250,000 of their annual R&D credits against their payroll tax liabilities.


Think about Retirement

Individual taxpayers have an opportunity to contribute up to $18,000 to an employer-sponsored 401(k) retirement plan in 2017 and benefit from future years of compounding interest. At the minimum, taxpayers should contribute the amount offered by an employer match, which can be likened to free money. Taxpayers who do not have access to a 401(k), may still reap tax benefits and save for the future when they establish and contribute a maximum of $5,500 in 2017 to an Individual Retirement Account (IRA) or Roth IRA.


Businesses that establish retirement savings plans for themselves and their employees can gain a significant competitive advantage when recruiting workers who understand the value of retirement readiness. In addition, not only may you receive tax credits and other incentives to help the business pay for the costs of establishing a retirement savings program, but you may also deduct the amount you contribute to worker’s plans as an employer match.


Tax planning doesn’t have to end in April. In fact, there is a multiple of opportunities throughout the year when individuals and businesses can benefit from tax-consulting services intended to build wealth, optimize business profitability and comply with domestic and international regulations, all while maintaining tax efficiency.


About the Author: Jack Winter, CPA/PFS, CFP, is an associate director with the Tax Service practice of Berkowitz Pollack Brant, where he works with individual taxpayers and entrepreneurs on estate planning, tax structuring and business consulting.  He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at



Consider 754 Elections for Immediate Impact when Selling, Buying or Liquidating Partnership Interest by Dustin Grizzle – UPDATED

Posted on July 21, 2017 by Dustin Grizzle



The sale, exchange or liquidation of partnership interest in appreciated property, such as real estate, is a common occurrence among partners and members of partnerships and LLCs taxed as partnerships. Whether due to disagreements among the partners, the death or divorce of a partner, or the addition of new partners, these transactions can result in a discrepancy between the property’s fair market value (FMV) and its basis, which can ultimately affect the tax treatment of each partner’s reported income, gains and losses. To remedy this, a partnership may make a 754 election under Internal Revenue Code sections 743(b) and 734(b) to equalize the buyer’s basis in the purchased partnership interest in property (outside basis) and the buyer’s share of the basis of the assets inside the partnership net of liabilities (inside basis).

While this election can be somewhat complex and time-consuming, it provides an incoming partner with a step-up or step-down in basis to reflect the FMV of the property at the time of the transfer; failing to make a 754 election can represent a missed opportunity for a partner to accelerate deductions and recover basis in a shorter period of time.

Understanding the Basics of Basis

When a person or entity buys an interest in a partnership with appreciated assets, their “outside basis” in the property increases to the purchase price and may subsequently reduce or even eliminate taxable gains when they sell the property in the future.

In general, partners or members of pass-through entities will typically increase their basis in partnership interests through partnership contributions and taxable and tax-exempt income; their basis in the property will decrease due to distributions, nondeductible expenses and deductible losses. Therefore, when existing partners sell their interests in property owned by the partnership, they will typically recognize a gain or loss, while the new partner’s basis in the property will become the purchase price he or she paid. If the property is highly appreciated, the buyer’s outside basis in the partnership interest will far exceed the inside basis in those assets. Ultimately, this can remove the new partner’s rights to immediate depreciation deductions and defer his or her benefit of additional basis until the underlying property is sold.

A 754 election bridges the gap between inside and outside basis by immediately stepping-up or stepping-down the basis of the remaining partnership assets. This allows the entity the option to equalize the partners and provide them with a tax asset, which allows the new partner to avoid taxation on gains and losses, already reflected in the price he or she paid for the partnership interest, when the asset is sold as opposed to when the partnership terminates. In addition, when the adjustment relates to depreciable or amortizable property, such as real estate, the new partner may begin taking those deductions in the year the election is made rather than waiting to recoup his or her basis when the property is transferred or sold in the future.

Exceptions to these rules exist for “substantial basis reductions” and “substantial built-in losses” that require a step-down in basis, even in the absence of a 754 election, when the following criteria are met:

·        the partnership has a built-in loss of $250,000 or more,

·        there is a downward basis adjustment of $250,000 or more, or

·        the transfer or sale involves an electing investment partnership, such as a hedge fund.


Under each of these circumstances, anti-stuffing rules will apply in order to limit a buyer’s ability to benefit from overvalued net operating losses (NOLs) and NOLs earned in years prior to the date of the purchase.

How a 754 Election Works

Assume that in 2000, partners A, B and C contribute $100 each in exchange for a 1/3 interest in Donut LLC. Donut purchases a $300 asset depreciable over 10 years on the straight line method and earns $900 income before depreciation over the first 5 years. Donut distributes $600 of that amount to each partner in 2005, providing it with an inside basis of $450 ($300 asset – $150 depreciation + $900 income – $600 distribution), which equals the total of each partner’s individual outside basis ($150 X 3) in their partnership interests.

Now consider that in 2006, Partner C sells his entire 1/3 interest in Donut LLC to New Partner D for $250 cash. Partner C will incur a $100 long-term capital gain ($250 sales price – $150 basis) on his 2016 personal tax returns. Subsequently, Partner D will take over Partner C’s capital account of $150, which exceeds by $100 his proportionate share of his basis ($250) in Donut LLC’s assets.

If Donut breaks even in years 2006 through 2016 and disposes of the property without a Section 754 election on Jan. 1, 2017, Partner D will not recover his outside basis (purchase price in excess of “inside basis”) of $100 until the year of liquidation.

Had Donut LLC made a Section 754 election in its 2006 tax returns, Partner D would recover his inside/outside basis difference of $100 as a $10 ordinary depreciation deduction each year until the additional basis was fully recovered.  The ultimate sale of the asset in 2017 would result in the same capital gain to all partners.  Without the 754 election, Partner D would have missed the benefit of timely deductions during the years 2006 through 2016.

How to Make a Section 754 Election

Section 754 elections are available only to partnerships and LLCs taxed as partnerships for which the entity’s income and losses pass through to each partner. A valid election requires strict adherence to procedural guidelines, including the filing of a written statement with the partnership’s tax return in the year that the distribution or sale occurred. Because the election is made at the entity level, the statement must specify the name and address of the partnership, and it must contain a declaration that the partnership elects under section 754 to apply the provisions of section 734(b) and section 743(b). Once the election is made, it will remain in effect for all future years, unless the partnership applies for and receives IRS approval to revoke it.

The decision to make a Section 754 election can be complicated and burdensome but may be well worth the effort for accelerating a partner’s tax deduction following a sale, exchange or liquidation of partnership interest. However, making this determination is best accomplished under the guidance of professional accountants.

The advisors and accountants with Berkowitz Pollack Brant work with domestic and international businesses to meet regulatory compliance obligations, optimize profitability and maintain tax efficiency.


About the Author: Dustin Grizzle is an associate director with Berkowitz Pollack Brant’s Tax Services practice, where he provides tax-planning and compliance services to high-net-worth individuals and businesses in the manufacturing, real estate management and property investment industries. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at



First Steps to Tackling the New Model for Revenue Recognition by Christopher Cichoski, CPA

Posted on July 20, 2017 by Christopher Cichoski

Businesses large and small and across virtually all industries face a perfect storm of financial reporting compliance challenges to contend with in the coming months. On the near horizon are the new revenue recognition standards, which go into effect for public companies, employee benefit plans and certain not-for-profit entities beginning after Dec. 15, 2017, and Dec. 15, 2018, for private companies. The new method for recognizing revenue from contracts with customers can be a heavy compliance burden on affected businesses. Among the challenges business will face are significant investments of time, resources and coordination across multiple business functions to review how the new standard will affect their financial reporting in the future and potential requirements to change existing contracts, business policies, practices and technology – all while maintaining normal business operations.


Rather than watching the clock count down and awaiting industry-specific implementation guidance from the American Institute of CPAs (AICPA), businesses should be taking the following steps now to make the eventual transition as smooth and seamless as possible.


Understand the Basics of the New Model of Revenue Recognition

In 2014, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) introduced ASU 2014-09 to simplify how businesses in different industries book revenue for similar transactions and ensure that they present their financial results in a manner that is comparable across all industries and capital markets. The new model does away with disparate industry- and transaction-specific financial reporting requirements in favor of a more principles-based approach that businesses in all industries and countries will use in the same consistent manner to report the “nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer” in the same consistent manner.  More specifically, the model requires businesses to take the following five steps:


  1. Identify each customer contract
  2. Identify each and every “distinct performance obligation”, or separately identifiable goods and services, they promise to deliver
  3. Determine the transaction price(s) they “expect to be entitled to” under the terms of the contract
  4. Allocate the transaction price to each separate and distinct performance obligation
  5. Recognize revenue when the entity satisfies each separate performance obligation

Ultimately, businesses will need to identify each distinct product and/or service they provide and determine when and for how much they can recognize the proportionate revenue from each individual obligation contained in each separate customer contract. Despite the universal application of the five-step model, businesses will be impacted differently from one company to the next and from one industry to another.


Develop a Team to Spearhead the Process

Do not make the mistake of assuming that the new standard of revenue recognition is merely an accounting or finance issue. Rather, businesses of all sizes should recognize the impact the new rules and how they must recognize revenue in the future will have on all of the people, processes and systems throughout their organizations, including sales, IT, legal, accounting and financial reporting.


Remember, this is a marathon, not a sprint, and it will require significant amounts of time and teamwork to gather and analyze information, assess the impact of the new regulations on their current operations and make needed adjustments. For example, compliance with the new standard may require businesses to change their pricing structures and sales incentives, as well as employee compensation and the IT systems that manage and control these functions.


Assess Contracts with Customers

Gathering and analyzing information related to all of a business’s existing contracts is pivotal to implementing the new regulations. For one, businesses may find that existing contracts based on currently acceptable “persuasive evidence of an arrangement” will not qualify as contracts with customers under the new regime of revenue recognition, which requires that all of the following conditions be met:

·        The agreement specifies the legally enforceable rights and responsibilities of both the buyer and the seller, including the payment terms for the transfer of goods and/or services

·        Both seller and buyer approve the contract (in writing or orally) and agree to perform their respective contractual obligations

·        The agreement has commercial substance, for which both buyer and seller can expect their respective cash flow to change as a result of the transaction


Identify Distinct Promises for Goods and Services

Under the new standard, businesses must determine, within the context of customer contracts, each separate and distinct good or service they promise to transfer to the customer as well as the timing and amount of revenue they may recognize from each individual obligation contained in the contract.  More specifically, the regulations define “distinct” goods and services as those in which

1.     the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer or

2.     The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract


In other words, businesses must determine whether they promise to transfer each good or service individually or as combined goods and services. For example, a business may integrate and bundle together multiple promises for goods or services (inputs) to deliver to the customer one combined output. Similarly, multiple goods or services may be interdependent or interrelated with each other, such is the case with software and subsequent updates, for which two or more goods or services may be combined into one promise to transfer goods and services. In some situations, a business may find that contract components that they previously bundled together should be identified separately under the new regulations.


Yet, there are times when a contract with a customer may include “implied” promises to transfer goods or services that are not explicitly identified in a contract as separate performance obligations. Rather one or more phases, elements or units of a performance obligation may be bundled together into one combined output(s). For example, if a business performs shipping and handling services to fulfill its obligation to transfer ownership of a product to a customer, those activities will not be considered separate performance obligations that would otherwise require additional contracts. Therefore, the seller may recognize revenue from the sale of a product at the time that it ships the good to the customer.  Conversely, if a seller, under its normal business practices, has a history of reimbursing customers for goods that have been lost or damaged in transit, it may consider this coverage of risk to be a separate services for which revenue may be recognized only after the customer physically receives and accepts the product.


Generally, the following factors will indicate that two or more promises to transfer goods or services to a customer are not separately identifiable:

1.     The entity provides a significant service of integrating the good goods or services with other goods or services promised in the contract.

2.     One or more of the goods or services significantly modifies or customizes, or are significantly modified or customized by, one or more of the other goods or services promised in the contract.

3.     Each of the goods or services are highly interdependent or highly interrelated in ensuring the seller can fulfill its promise to transfer each of the goods or services independently.


Know When to Recognize Revenue

In order for a business to recognize revenue from performing a particular performance obligation, the following criteria must be met:

·        The seller transfers title and delivers the product or services to the customer, who accepts the goods and services along with the risks and rewards of ownership

·        It is probable that the seller will receive payment for the transaction

·        The “amount of revenue can be measured reliably”

·        The seller substantially completes or fulfills the terms specified in the arrangement with only inconsequential obligations remaining.


Businesses will need to consider a myriad of issues that can affect these requirement, including, but not limited to, the definition of title transfer, customer acceptance and substantial completion of contract terms; the effect of undeliverable products, customers’ rights of return and refunds on their recognition of revenue; and sales involving “multiple element arrangements” for which the new method for recognizing revenue may need to be applied to each distinct obligation separately.


Consider Non-Revenue Impact

Depending upon the industries in which businesses operate, the new standard for recognizing revenue from customer contracts could have significant impact on their non-revenue financial reporting.


For example, product-service warranties that businesses offer customers will need to be treated under the new regulations as separate performance obligations for which revenue allocation will change from current practices. In addition, businesses may be required under the new standard to capitalize and defer recognition of certain costs that they currently expense and record in the current year. This may allow businesses to depreciate or amortize over time the costs they incur for direct labor and materials, bids, sales commissions and subcontractors.


Similarly, the new standard will change the way in which businesses treat sales of non-financial assets, such as real estate, property, plant and equipment, outside of their normal and customary business activities. The timing and measurement of the gains and losses from these sales, which businesses will recognize separately on their financial statements, may be different from current practices.


When considering the impact that the new regulations will have on the recognition of revenue it is reasonable to assume that it will also affect the timing and amount of taxable income the business will report.  As a result, businesses should begin thinking now about potential revisions they will need to make to pricing arrangements and all internal controls related to income tax accounting.


This assessment of customer contracts and different performance obligations can be a daunting challenge, especially for small to mid-size businesses that do not have in place the appropriate systems required to analyze and dissect this information. The same is true for bigger businesses with very large numbers of customer contracts and sources of revenue, some of which may be combinations of bundled products and services, including discounts, licensing fees, interest and dividends, royalties and rent.


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


About the Author: Christopher Cichoski, CPA, is a senior manager in the Audit and Attest Services practice with Berkowitz Pollack Brant, where works closely with business clients in the real estate and construction industries as well as with non-profit organizations.  He can be reached at the Miami CPA firm’s office at (305) 379-7000 or via email at

Where you Die Could Cost you and your Heirs a Pretty Penny by Jeffrey M. Mutnik, CPA/PFS

Posted on July 17, 2017 by Jeffrey Mutnik

High-net-worth U.S. taxpayers who live in certain states have more worries than the federal estate tax taking a bite out of their wealth. The residents in 14 states and the District of Columbia are also subject to estate taxes at the state level, while another six states impose an inheritance tax on assets bequeathed to their residents. The challenge for these taxpayers is that those states have lower exemption thresholds than the federal estate tax, and therefore expose them to greater risk of taxation on their wealth.


In 2017, individuals may exempt $5.49 million from federal estate taxes. For married couples, the exemption is double that amount, or nearly $11 million. Anything above those thresholds would be subject to a flat 40 percent tax rate. Therefore, it may be assumed that federal estate tax would generally apply to only the top 1 percent of ultra-wealthy families. Conversely, residents in states such as Massachusetts and Oregon, which currently have a $1 million estate tax exemption, will theoretically be subject to state level taxation on their estates. The same theory would apply to residents in Connecticut, Maryland, Minnesota, New Jersey, Rhode Island, Vermont and the District of Columbia, whose face an exemption threshold of $3 million or less. Assets above these amounts would incur state-level estate taxes at rates that can be as low as 0.8 percent, or as high as 20 percent. Residents who live in either Maryland or New Jersey must also contend with state inheritance taxes, which are levied on the transfer of assets from a decedent to a named beneficiary, depending on the beneficiary’s relationship to the benefactor.


Non-residents of those states with estate taxes must also be wary of owning property in taxable state jurisdictions. Title to second homes should be structured to not only avoid state estate tax application, but to also avoid costly and time consuming ancillary probate.


Minimizing or even eliminating exposure to estate taxes on both the federal and state levels is possible when taxpayers take the time to plan and develop well-thought-out estate plans. Viable strategies may include gifting assets to heirs during one’s life or creating certain trusts or structures that remove or limit assets includible in a taxable estate. Yet, even with these strategies in place, high-net-worth families must also consider the capital gains taxes that will be imposed on transfers of highly-appreciated assets.


The fate of the federal estate tax is unknown under the current presidential administration, which has called for a complete elimination of the tax. However, even with such a repeal, there is no promise that state-level estate taxes will disappear or become less burdensome to taxpayers who reside in those states.  More than ever, estate planning must encompass state estate tax planning as well as federal and state income tax planning.


The advisors and accountants with Berkowitz Pollack Brant work with high-net-worth families in the U.S. and abroad to maintain tax efficiency, minimize tax liabilities and comply with a complex system of tax laws.


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 at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at



Are your Workers Employees or Independent Contractors? Making the Wrong Decision can be Damaging by Cherry Laufenberg, CPA

Posted on July 13, 2017 by Cherry Laufenberg

Despite the Department of Labor’s recent retraction of the prior administration’s narrow interpretation of the Fair Labor Standards Act (FLSA), businesses must remain vigilant in upholding the underlying law that requires proper classification of workers as either employees or independent contractors. Failure to do so can put businesses at risk of legal exposure, severe penalties on the state and federal levels, and required payments of back wages and taxes.


Under the provisions of the FLSA, employers must provide full-time employees with a minimum wage and specific benefits, including worker’s compensation and unemployment insurance, while also bearing the responsibility of paying the employees’ federal and state employment taxes. Individual states, such as Florida, New York and New Jersey, have similar laws in place to protect workers and ensure that employers pay their fair share in taxes.


In response to a surge in the number of employers that misclassified workers as independent contractors, either erroneously or intentionally, the DOL’s Wage and Hour Division in 2015 directed businesses to expand their assessment of employee relationships and presume that most of their workers are in fact “employees” under the FLSA. With the Trump administration’s intent to dismantle this broad definition, combined with the gig economy’s blurring lines between employees and independent contractors, businesses must take the time to understand the laws on the state and federal levels and properly assess their relationships with workers.


Employee or Independent Contractor

In the broadest terms, employee classification comes down to the relationship between the employer and the worker and the nature and level of control that the employer has over the directing the worker’s job and financial earnings. The more control the employer has, the more likely the worker is an employee. To help businesses make this determination, the IRS advises that employers ask themselves following questions:

1.     Is the company responsible for directing what the worker does and how he or she does it?

2.     Does the company provide the worker with tools and other supplies required to get the job done?

3.     Are the services provided by the worker considered to be an integral part of the company’s business?

4.     Does the business control how the worker is paid, including reimbursements for expenses the worker incurs while performing his or her job?

5.     Does the business provide the worker with employee-type benefits, such as paid vacation days, insurance and/or access to a retirement savings plan?

6.     Are there written contracts or employee type benefits that the company provides to the worker (i.e. pension plan, insurance, vacation pay, etc.)?

7.     Is the relationship between the company and the worker considered permanent, judging by the standards of businesses in similar industries?


When the answers to all of these questions is “yes”, the worker is an employee, for whom the business must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages it pays to the employee. Independent contractors are responsible for paying their tax liabilities individually, including all federal and state payroll taxes for themselves as both employer and employee. Additionally, independent contractors, who may enjoy the benefits of flexible work arrangements, should note that they will not be covered by the safety net protections provided by employer, including worker’s compensation and unemployment insurance.


Under most circumstances, however, not all answers to these questions will be in the affirmative and neither will the answers be the same from one situation to another. This is especially true in today’s sharing economy, in which freelance, on-demand workers are becoming more and more common. While one factor does not weigh heavier than the others, businesses should consider all elements when making an employee or independent contractor determination, including the standards set forth by their states and those used by other businesses in similar industries.


For example, Florida recently passed a law that requires ride-sharing companies, such as Uber, to treat their drivers as independent contractors, and not employees, as long as the companies do not specify the drivers’ hours or restrict the drivers’ involvement in other businesses. In addition, worker classification has long been a challenge in the real estate and construction industries, where it is common for developers to misclassify sub-contractors in business for themselves as independent contractors. In reality, subcontractors should often be treated as employees, for whom developers must bear of the burden of paying exceedingly high worker’s compensation insurance, especially when their work is an integral part of the developer’s business and the developer has behavioral and financial control over the subs’ responsibilities and payments.


When in doubt, businesses may consider erring on the side of caution and treating a worker as an employee to avoid any potential legal exposure in the future.  No matter what decision they make, businesses should document their rationale for how they classify each and every worker.


About the Author: Cherry Laufenberg, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant, where she works with corporations, pass-through entities, trusts and foreign entities.  She can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at


Surviving Spouses have More Time, Less Complex Method for Electing Portability of a Deceased Spouse’s Unused Estate Tax Exemptions by Jack Winter, CPA/PFS

Posted on July 11, 2017 by Jack Winter


The IRS recently issued guidance that provides widows and widowers with an easier and less costly method to transfer a deceased spouse’s unused estate and gift tax exclusion to themselves. Making this portability election essentially allows surviving spouses to protect double the amount of assets from federal estate and gift tax liabilities during their lifetime and at death.  In 2017, the federal estate tax exclusion is $5,490,000. Any assets over this amount are subject to a 40 percent tax rate.


Under the updated regulations, a widow or widower whose spouse died after January 2, 2016, will have up two years to elect portability of a Deceased Spouse Unused Exemption (DSUE).  Doing so requires a timely filing of IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, even in instances in which the estate’s value is so small that a filing would not otherwise be required.


Previously, portability required the filing of an estate tax return no more than 15 months after the date of the first spouse’s death. If an estate missed this deadline, it could request a letter ruling from the IRS and pay fees as high as $10,000. In applying the new guidance retrospectively, however, the IRS is permitting estates of decedents who died between January 1, 2011, and January 2, 2016, and that were not previously required to file an estate tax return, to make a portability election before January 2, 2018, or on the second anniversary of the decedent’s date of death, whichever date is later.  As a result, widows and widowers whose spouses passed in the past six years will have a new opportunity to maximize their estate tax savings.


The advisors and accountants with Berkowitz Pollack Brant work with individuals, family estates and business owners to navigate complex laws and implement tax efficient strategies intended to build and preserve wealth.


About the Author: Jack Winter, CPA/PFS, CFP, is an associate director with Berkowitz Pollack Brant’s Tax Services practice, where he works with individual taxpayers and entrepreneurs on estate planning, tax structuring and business consulting.  He can be reached at the CPA firm’s Ft. Lauderdale, Florida, office at (954) 712-7000 or via email


IRS to Require Certain Taxpayers to Begin Paying User Fees Electronically in August by Andreea Cioara Schinas, CPA

Posted on July 07, 2017 by Andreea Cioara Schinas

Beginning on August 15, 2017, taxpayers who request letter rulings, closing agreements and certain other rulings from the Internal Revenue Service will have no other option than to make user fee payments electronically using the federal government’s system.  Previously, these taxpayers were permitted to pay user fees by check or money order.


Affected taxpayers can remit payment online using a credit card, debit card or via direct debit or electronic funds withdrawal from a checking or savings account by visiting and entering “IRS Chief Counsel User Fees” in the Search Forms box.  Once an electronic payment is made, taxpayers must either print a copy and mail or hand deliver it to the IRS along with original, signed ruling request and supporting materials, or they may fax the payment receipt and ruling request to the IRS at 877-773-4950.


Taxpayers may petition the IRS, in writing and prior their filings of tax returns, to request status for tax purposes or the tax effects of his or her acts or transactions.  In response, taxpayers will receive from the IRS Chief Counsel written determination letters that represent how the IRS interprets the tax laws to apply to the taxpayers’ specific facts and circumstances. User fees can range from $200 to $28,300, depending upon the type of ruling being sought.


Navigating communications with the IRS on one’s own can be challenging. Therefore, taxpayers should consider engaging the assistance of qualified accountants and CPAs who have years of experience working with these IRS to resolve personal and business tax account matters.  The advisors and accountants with Berkowitz Pollack Brant work with domestic and foreign individuals, businesses and non-profit organizations to manage IRS issues, build wealth, maintain tax efficiency and comply with complex regulatory requirements.



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


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