Posted on May 30, 2018 by
Tax season is here, and most taxpayers are focused on gathering documentation to file their 2017 tax returns by the April 17, 2018, deadline. Yet, it’s also important for taxpayers to consider the cost-of-living adjustments that the IRS has applied to retirement plan contributions in 2018, which taxpayers will report on their returns in 2019.
The maximum amount an individual taxpayer can contribute via salary deferrals to an employer-sponsored 401(k), 403(b) and most 457 plans increases to $18,500 in 2018, up $500 from the prior two tax years. However, the catch-up contribution limit for savers 50 and older remains at $6,000 in 2018.
The 2018 contribution limits to IRAs and Roth IRAs remains unchanged at $5,500, with an additional $1,000 allowance for savers age 50 and older. Taxpayers who have not yet maximized their IRA contributions for 2017 still have an opportunity to do so by April 17, 2018, and apply that amount to their 2017 tax returns.
For 2018, the IRS has increased the income eligibility thresholds for taxpayers to contribute to traditional IRAs and Roth IRAs. For single taxpayers covered by a workplace retirement plan, the income phase-out range is $63,000 to $73,000. For married couples filing jointly in which the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $101,000 to $121,000. The income phase-out range for taxpayers making contributions to Roth IRAs increased to $120,000 to $135,000 for singles and heads of household, or $189,000 to $199,000 for married couples filing jointly.
The maximum amount you may contribute in 2017 to a traditional IRA or Roth IRA before April 15, 2017, is $5,500, or $6,500 if you are age 50 or older. The type of IRA you are eligible to set up will depend on your filing status and annual income.
With the reality of tax reform effective Jan. 1, 2018, it is important that individuals take the time now to understand how the new law will ultimately impact on their future tax liabilities for 2018 and beyond. Under the guidance of experienced accountants, taxpayers may begin planning now to minimize their tax liabilities in the future.
About the Author: Nancy M. Valdes, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she works with U.S. and foreign-based entrepreneurs and closely held businesses to manage cash flow, protect assets and maintain tax efficiency. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at firstname.lastname@example.org.
Many affluent families have complex financial lives and responsibilities. Along with the opportunities that can come with wealth are a myriad of challenges that families must plan for under the guidance of experienced family office professionals who can simplify financial management, pay bills, manage charitable giving, oversee succession planning and collaborate with other trusted advisors on administration and management of family wealth.
Accounting is a crucial component to family office success. It demonstrates how money flows between family members, their businesses and investments, and provides a basis for year-end tax planning. However, affluent families should neither underestimate the level of insight that regular bookkeeping can provide, nor should they ignore the countless opportunities they may have 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 cloud accounting software, like QuickBooks Online. Cloud-based solutions can automate many accounting processes and reduce the need to hire staff with accounting skills to manage them. Moreover, in today’s 24/7, on-demand society, families can access and manage important financial data at any time and at any place with the click of a button on a mobile device.
Cloud-based accounting systems are the future, and the future is here. By combining the benefits of these services with the expertise of qualified accountants, affluent families can gain peace of mind and financial and administrative freedom.
Improve Organization and Productivity
Accounting software eliminates the need to spend time searching through files and pages of data to find important information, such as when a specific payment was received, a bill was paid or an asset was purchased. These solutions organize information in an intuitive and systematic manner that makes it easy for users and the family office team to find what they are looking for within seconds.
Access Real-Time Financial Data
Cloud-based accounting software connects seamlessly to a family’s bank and credit-card accounts and automatically imports data to synchronize 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. Additionally, these platforms are constantly evolving and adding new features that they automatically update to end users’ desktops, laptops and mobile devices.
Improve 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 for household employees. With these and other add-on applications, family offices can synchronize relevant data back to their cloud-accounting software to 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 family’s financial picture, and they may deploy this information immediately to share with key stakeholders, including investment advisors, legal counsel, and interested family members.
Store and Access Backup Data Safely
No one 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, families 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. Affluent families need only an internet connection to access general ledgers, financial statements, vendor invoices and bill payment history 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, affluent families should still meet with their accountants on a regular basis and not just at tax time. By combining technological solutions with face-to-face professional counsel, families can ensure their finances are on track and that they 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 owners of privately held businesses. He can be reached at the CPA firm’s Fort Lauderdale, Fla., office at 954-712-7000 or via email at email@example.com.
Behind the fairytale nuptials of British Prince Harry to American actress Meghan Markle is a dose of reality that the recently betrothed couple will need to pay their share of U.S. taxes during their marriage.
Under U.S. tax laws, U.S. citizens must report and pay taxes on their worldwide income, including assets held in overseas bank accounts, regardless of whether or not they reside in the U.S. By law, Markle must maintain her U.S. citizenship and pay U.S. taxes even if she applies for residency status in the U.K., which can be a three-year process. Any money that she earns in Britain or elsewhere will be subject to U.S. taxes.
Moreover, if Markle and the Prince have joint financial accounts with a balance of more than $10,000 at any point during the year, the bank or financial institution holding those accounts would be required to share the royal couple’s personal financial information with Uncle Sam, thanks to the U.S.’s Foreign Account Tax Compliance Act (FATCA). This includes all of the royal family’s trusts and offshore accounts in which Prince Harry holds ownership interest or for which he is a named beneficiary. Finally should the royal couple bear children while Markle is a U.S. citizen, those offspring will be considered U.S. citizens subject to U.S. tax laws.
If Markle becomes a dual citizen of the U.S. and the U.K, she may still have to meet her annual U.S. tax reporting requirements and disclose sensitive information about trusts and other financial accounts held by the royal family. However, as a U.S. citizen or dual citizen, she may qualify for either a foreign earned income exclusion or a foreign tax credit for taxes she paid in the U.K. on U.K.-source income. Should she take the deduction, she would be able to waive U.S. taxes on the first $104,000 of non-investment income she earns in the U.K. If she takes the credit, she may be able to use the taxes she paid in the U.K. to reduce her U.S. tax liabilities.
One option to keep the IRS’s prying eyes and hands away from the royal couple’s finances is for Markle to renounce her U.S. citizenship after the requisite three-to-five year waiting period.
While this may appear to be the simplest option, it would subject Markle to a significant exit tax and make it difficult for her to regain U.S. citizenship in the future.
U.S. citizens living abroad should meet with experienced tax advisors to understand their U.S. and foreign tax reporting responsibilities based upon such things as the type of income they receive.
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 firstname.lastname@example.org.
According to the IRS, the number of tax returns that the agency examines under audit has decreased each year since 2010. However, the IRS’s shrinking budget and limited resources are not enough to give taxpayers a reprieve from an audit. Following are 10 of the top red flags that could trigger IRS scrutiny.
- Not reporting or misreporting income that is a matching item. Income that is reported on W-2s and 1099s should match the numbers that you report on your federal income tax return.
- Earning more than $1 million. In 2017, the IRS audited 4.4 percent of tax returns with income exceeding $1 million, 0.8 percent of returns reporting income of more than $200,000, and just 0.2 percent of returns with less than $200,000 in income;
- Big changes in income from year-to-year, including a significant increase or significant decrease in amount you report;
- Abnormally high charitable deductions will be easier to spot for the 2018 tax year thanks to the tax reform law that increases the standard deductions and will reduce the number of taxpayers who itemize;
- Unusually low compensation paid to an S Corporation owner;
- Incorrect Social Security Numbers;
- Claiming hobby losses could draw the attention of the IRS, which follows very specific rules regarding the treatment of income earned from a business or from an expensive hobby;
- Showing consecutive years of losses on Schedule C, Profit or Loss from a Business;
- Excessive use of a home office deduction, or unreimbursed employee expenses;
- Excessive claims for meals and entertainment deductions, which the Tax Cuts and Jobs Act limits in 2018.
About the Author: Richard Cabrera, JD, LLM, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where he provides tax planning, consulting, and mergers and acquisition services to businesses located in the U.S. and abroad. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at email@example.com.
The April tax filing deadline has passed, but taxpayers are still at risk of falling victim to tax-related fraud and identity theft schemes that continue throughout the year. Following is a list of the top-12 scams that the IRS identified for 2018.
- Identity Theft. If criminals gain access to your personal information, such as your Social Security number, they can steal your identity to file fraudulent tax returns in order to claim a refund before you do. Never give your personal information to anyone you do not know, and take precautions to protect your sensitive information stored on computers, mobile devices and online financial sites.
- Phone Scams. The IRS will never make an unsolicited telephone call to a taxpayer to request personal information or to threaten the taxpayer with arrest or deportation for unpaid tax liabilities. If you receive a call from someone claiming to be from the IRS, hang up without providing any details about yourself.
- Email Phishing Scams. Phishing occurs through unsolicited emails or fake websites that lure potential victims into clicking on links and divulging personal and financial information. Often, the emails come from criminals posing as a bank or other legitimate institution you know. To avoid falling victim to phishing attacks, remember that that the IRS will never initiate contact with a taxpayer to request personal information, and such personal data should never be shared via email or text message.
- Tax-Return Preparer Fraud. Consumers must do their homework before engaging the services of a tax preparer to ensure that the individuals they choose to work with are in fact qualified and are not among the many scam artists that pose as legitimate professionals. Never sign a blank tax return. Before sharing any of your personal information with a new tax preparer, ask for an IRS Preparer Identification Number and search the IRS database of credentialed professionals at https://irs.treasury.gov/rpo/rpo.jsf
- Falsely Inflating Refunds. In order to yield a higher refund from the U.S. government, taxpayer and their return preparers may falsely report artificially low income or report credits, deduction or exemptions that you are not legally qualified to claim.
- Falsely inflating income in order to qualify you for a refundable tax credit to which you are not legally entitled.
- Falsely padding deductions to create a larger refund than you are entitled to or to reduce the amount of tax you are required to pay.
- Improperly claiming business credits to which you are not entitled.
- Making frivolous tax arguments in an effort to reduce your tax liability or defend against fraudulent claims.
- Abusive Tax Shelters. Hiding income and structuring assets to avoid taxes is illegal. The IRS is especially concerned about the use of schemes involving the use of “micro-captive” insurance structures that do not meet the true attributes of an insurance product.
- Fake Charities. It is common for scammers to take advantage of a natural disaster or other national issue and develop fake charities though which they solicit donations from the unsuspecting public. Before opening your heart and your wallet, verify that the organizations is a qualified charity with the IRS. If you are unsure, refocus your donation to well-established charities.
- Hiding Money Offshore. While it is perfectly legal to hold assets in offshore banks and brokerage accounts, you are responsible for reporting and paying applicable U.S. taxes on those assets. If you previously failed to report foreign financial assets, you have until Sept. 28, 2018, to voluntarily disclose this information to the IRS and avoid criminal prosecution. After this date, the IRS will end its Offshore Voluntary Disclosure Program (OVDP).
About the author: Joseph L. Saka, CPA/PFS, is CEO of Berkowitz Pollack Brant, where he provides a full range of income and estate planning, tax and business consulting and compliance services, and financial planning expertise to entrepreneurs, high-net-worth families and family companies and business executives in the U.S. and abroad. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via e-mail at firstname.lastname@example.org.
The Florida legislature recently announced the creation of a seven-day Disaster Preparedness Sales Tax Holiday from June 1 to June 7, 2018.
During this first week of the 2018 hurricane season, Florida residents will not be required to pay sales tax on hurricane-preparation supplies that include the following:
- Reusable ice costing $10 or less,
- Flashlights, lanterns and candles that cost $20 or less,
- Gas or fuel containers that cost $25 or less,
- Coolers and batteries that cost $30 or less,
- Radios, tarps, bungee cords, Visqueen and other flexible waterproof sheeting that cost $50 or less, and
- Portable generators costing $750 or less.
Consumers should note that the sales tax holiday does not apply to the rental or repair of any of the qualifying supplies nor to any sales that occur in an airport, theme park, entertainment center or public lodging establishment.
Residents and businesses located in Florida will also benefit from several hurricane-related tax exemptions the legislation approved, effective retroactively to 2017, including:
- A refund of taxes paid for residential homestead property damaged by a natural disaster beginning in 2017,
- An exemption from documentary stamp tax on emergency loans taken, and
- A sales tax exemption for generators purchased for nursing homes or assisted living facilities.
About the Author: Michael Hirsch, JD, LLM, is a senior manager of Tax Services with Berkowitz Pollack Brant’s state and local tax (SALT) practice, where he helps individual and business to meet their corporate, state and local tax reporting requirements. He can be reached at the CPA firm’s Fort Lauderdale, Fla., office at (954) 712-7000, or via email at email@example.com.
Due to the complexity of the U.S. tax system, it is not uncommon for foreign persons to accidentally become U.S. tax residents subject to taxation on their worldwide income based on such factors as the number of days they spend in the country.
Individuals who were born in the United States are automatically U.S. citizens subject to U.S. taxation on their global income. However, when an individual has a “tax home” outside the United States and meets other requirements, he or she may be able to exclude a certain amount of foreign earnings from U.S. taxes.
Under U.S. tax laws, a person’s “tax home” is generally where the person lives in order to maintain a place of business, employment or post of duty, regardless of where he or she maintains a family home. In fact, an individual’s tax home may be different from his or her country of residence.
The foreign earned income exclusion may apply when a U.S. citizen or resident alien is a bona fide resident of a foreign country (or countries) for an uninterrupted period that includes one entire calendar year, or he or she must meet a physical presence test based on his or her unique facts and circumstances. Factors considered when applying the bona fide residence test include an individual’s intention to remain in a country, the purpose of his or her travels, and the nature and length of a stay abroad.
Just as the U.S. relies on a physical presence test to determine whether an individual qualifies as a U.S. tax resident alien, it also counts the aggregate number of days an individual is physically present in a foreign country to determine whether or not income earned in that country can be excluded from U.S. tax exposure. The exact calculation is based on an individual’s physical presence in a foreign country during an entire taxable year or a minimum of 330 full, 24-hour days over a 12 consecutive month period. The 330-day threshold need not occur consecutively; rather it is based on a cumulative amount of time over 12 consecutive months. Excluded from the calculation are days of travel into and out of the foreign country as well as days in which an individual leaves the foreign country for less than 24-hours.
For 2018, the maximum amount of foreign income a taxpayer may exclude from U.S. taxes is $104,100, which is indexed annually for inflation. It is important to note, however, that the exclusion applies only to “earned” income; passive income from sources such as interest and dividends do not qualify. Any foreign tax credits that might otherwise be available are reduced on a proportionate basis to the amount of foreign income excluded. Moreover, while individuals whose tax home is outside the United States will receive an automatic two-month extension of time to file their U.S. income tax return and pay any taxes due, interest on the tax that is owed will accrue during the extension period.
It is advisable that U.S. taxpayers seek the advice of experienced international tax and accounting professionals to assess their unique personal situation and develop appropriate strategies for minimizing tax liabilities, especially when taxpayers have homes and assets in multiple countries. While individuals whose tax home is outside the United States receive an automatic two-month extension of time to file their U.S. income tax return and pay any taxes due, however, interest will accrue during the extension period on any tax that is owed.
About the Author: Arthur Dichter, JD, is a director of International Tax Services with Berkowitz Pollack Brant, where he works with multi-national businesses and high-net worth foreign individuals to structure their assets and build wealth in compliance with U.S. and foreign income, estate and gift tax laws. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at firstname.lastname@example.org.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.