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Monthly Archives: August 2018

Tax Reform Allows Disabled Persons to Save More Money in ABLE Accounts by Jack Winter, CPA/PFS, CFP

Posted on August 29, 2018 by Jack Winter

The Tax Cuts and Jobs Act includes a provision that allows people with disabilities to put more money into their Achieving a Better Life Experience (ABLE) accounts and qualify for a Saver’s Credit that is available to low- and moderate-income workers.

The U.S. government introduced ABLE accounts in 2015 to help disabled individuals and their families save money to pay for disability-related expenses without any risk of losing public assistance, in the form of Medicaid and Supplemental Security Income. While contributions made to these accounts are not deductible, the distributions and earnings paid to beneficiaries are tax-free when used to pay for housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and other disability-related expenses.

Beginning in 2018, individuals may contribute up to $15,000 for the year into an ABLE account for a disabled beneficiary, who, for the first time, may also contribute to the account a portion or all of the money he or she earns from employment. The maximum amount working beneficiaries may contribute is limited to the poverty line amount for a single person household. For 2018, this amount is $12,140 for qualifying beneficiaries who live in the continental U.S., $13,960 in Hawaii and $15,180 in Alaska. However, beneficiaries will not be eligible to make these additional contributions to their ABLE account when their employers contribute to workplace 401(k) retirement plans on behalf of the disabled beneficiaries.

When qualifying beneficiaries do contribute to their ABLE accounts starting in 2018, they may also be eligible to receive up to $2,000 in the form of a Saver’s Credit. Under the Tax Code, individuals may use credits to reduce the amount of tax they owe or increase the refund that they can expect to receive back from the government in a given year. If beneficiaries do not work, they may still maximize their savings by rolling over into their ABLE accounts any money they have in their own 529 qualified tuition savings plan or that of another family member.

With the recent changes to the tax laws, individuals with disabilities and their family members should seek the counsel of experienced advisors to ensure they are maximizing savings and tax efficiency under the new regime.

About the Author: Jack Winter, CPA/PFS, CFP, is an associate director in the Tax Services practice of Berkowitz Pollack Brant, where he provides estate planning, tax structuring and business advisory services to individuals, families and business owners. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.

 

12 Ways to Reduce the Increased Threat of Expense Report Fraud under Tax Reform by Richard A. Pollack, CPA

Posted on August 27, 2018 by Richard Pollack

Entertaining clients, referral sources and employees with tickets to sporting events, country club outings, fishing trips or other forms of business promotion are common business practices. No matter how significant these costs, businesses have had the reassurance that the IRS would permit them to deduct all or a portion of these meals and entertainment (M&E) expenses from their taxable income. This benefit changes in 2018 with the passage of the Tax Cuts and Jobs Act (TCJA), which limits or, in some instances, eliminates the deductibility of M&E expenses and potentially puts businesses at greater risk of falling victim to expense report fraud.

While taxpayers are accustomed to keeping track of the costs they incur for activities that are “ordinary, necessary and directly related to the active conduct of a trade or business or for the production or collection of income,” the language of the new tax law complicates the rules regarding the deductibility of these expenses beginning in 2018. Gone are deductions for entertainment expenses, while certain meals enjoyed outside of entertainment activities may be 50 percent deductible when they meet certain criteria. As a result, businesses and workers that frequently entertain clients or referral sources will likely feel the loss of the tax savings that they once enjoyed. This, in turn, may create an environment in which employees seek out ways to get around the new rules and manipulate their expense reporting.

 What is Expense Reimbursement Fraud?

According to the Association of Certified Fraud Examiners’ 2018 Report to the Nations, expense reimbursement fraud is one of the most common types of occupation fraud. While it can be easy to identify, once detected, it often indicates just the tip of the iceberg in a larger scheme that can cost businesses millions of dollars. Therefore, it is critical that businesses understand the following forms of expense report fraud that employees commonly commit, and be vigilant in recognizing early warning signs:

  1. Mischaracterizing expenses by falsely claiming purchases for personal use are business expenses;
  2. Creating fictitious expenses by producing bogus receipts for expenses that they never incurred;
  3. Padding expense reports by overstating or inflating legitimate expenses;
  4. Remitting the same receipt more than once in an effort to yield multiple reimbursements for one expense.

Importantly, businesses must recognize that even a minor embellishment, such as rounding up the costs of a business lunch, can quickly turn into a more elaborate scheme that can go unnoticed for years. To avoid falling victim to fraudulent schemes and exposing themselves to millions in losses, businesses should have in place appropriate controls to prevent deceptive business practices and/or to monitor and detect misuse and abuse.

Preventing Expenses Report Fraud

While the TCJA represents some of the most significant changes to the U.S. Tax Code, its rapid enactment into law leaves taxpayers with numerous uncertainties in how they should interpret many of its provisions. However, there are certain steps that businesses can and should take to reduce their exposure to fraud and the economic and reputational losses that they will incur because of these schemes.

  1. Establish and educate employees about changes to written corporate expense policies, for which non-deductible entertainment expenses should be separate from potentially deductible meal expenses;
  2. Assess membership and other fees associated with professional trade organizations (deductible), entertainment venues (nondeductible) and event sponsorships (for which the fair market value of the sponsorship may be deductible);
  3. Require employees to submit original receipts that describe the expense, the names of the attendees/participants, the business purpose of meetings/meals, and the topics of business discussed;
  4. Require employees to attach to receipts additional proof that an expense is work-related (i.e. conference brochure) and not a form of entertainment;
  5. Establish a policy that requires supervisors/managers, payroll or HR personnel to review/approve every one of workers’ expense reports prior to reimbursements;
  6. Compare workers’ expenses to their work schedules, prior month and prior year expenses;
  7. Avoid reimbursing workers in cash;
  8. Consider using the IRS-recommended per diem rates for meals and mileage;
  9. Consider the use of corporate credit cards to track employee’s expense activities and compare them to expense reports;
  10. Verify mileage claims and require employees to detail claims of miles traveled by including exact addresses of locations;
  11. Conduct spot audits to detect anomalies or flag unverified expenses; and
  12. Strictly enforce expense-reporting policies, investigate suspicious claims and establish a formal system for managing the process and prosecuting fraudsters.

Businesses should not overlook the potential impact expense reimbursement fraud can have on their operations, their corporate reputation and their net income.

About the Author: Richard A. Pollack, CPA/ABV/CFF/PFS, ASA, CBA, CFE, CAMS, CIRA, CVA, is director-in-charge of the Forensic and Litigation Support practice with Berkowitz Pollack Brant, where he has served as a litigation consultant, expert witness, court-appointed expert, forensic accountant and forensic investigator on a number of high-profile cases. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at rpollack@bpbcpa.com.

 

 

IRS Clarifies Assets Eligible for First-Year Bonus Depreciation Deductions for Real Estate Businesses by Angie Adames, CPA

Posted on August 23, 2018 by Angie Adames

The Tax Cuts and Jobs Act (TCJA) that went into effect on Jan. 1, 2018, provides an opportunity for taxpayers to accelerate generous depreciation deductions for “qualified property” acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2027. However, because lawmakers drafted and passed the Act in haste, many taxpayers are left confused by certain provisions of the new law, including the type of assets that qualify for first-year bonus depreciation. Following is the IRS’s recently issued guidance intended to answer taxpayers’ questions and help them to obtain the full benefit of immediately writing off the costs of certain business assets.

Confusion Created By Tax Reform

In general, the TCJA increases first-year bonus depreciation deductions from 50 percent to 100 percent for an expanded universe of qualified property, new and used, with a recovery period of 20 years or less, as long as the taxpayer acquired the property from an unrelated party after Sept. 27, 2017, and before Jan. 1, 2023. In 2023, these depreciation deductions phase down to 80 percent, followed by 60 percent in 2024, 40 percent in 2025, and 20 percent in 2026. Taxpayers that build or acquire improvements can realize enhanced benefits from this provision of the new law when they conduct cost segregation studies that identify qualified property they can fully expense.

The language of the TCJA eliminates the availability of bonus depreciation to qualified leasehold improvement property, qualified restaurant improvement property, and qualified retail improvement property placed in service on or after Jan. 1, 2018. Instead, it consolidates these types of property into a new category of Qualified Improvement Property (QIP), defined as improvements to interior portions of non-residential buildings placed in service before the placed-in-service date of the improvements with a few exceptions.

IRS Clarification

While, the IRS does not specifically address QIP as qualified property for bonus depreciation for tax years 2018 and beyond, it does provide confirmation that taxpayers can fully expense QIP on their 2017 tax returns when they acquire and begin construction on QIP after Sept. 27, 2017, and before Jan. 1, 2018.

The IRS’s recently issued guidance also provides taxpayers with some clarity on what constitutes used property for purposes of qualifying for bonus depreciation. For example, used property will qualify for bonus depreciation as long as taxpayers meet the following criteria:

  • They had no depreciable interest in the property prior to or at the time of acquisition;
  • They acquired the property from an unrelated third party in an arm’s length transaction; and
  • They entered into a legally binding contract to acquire the property after Sept. 27, 2017.

With this in mind, it is important for taxpayers to understand that property they previously leased could qualify for bonus depreciation when acquired after Sept. 27, 2017. In addition, they may apply bonus depreciation to basis step-ups that result from a sale or exchange or a partnership interest. This preferential treatment of certain basis step-ups should be considered when planning a full or a partial buy-out of a partner and, in many situations, could make sales of partnership interests more attractive than partnership redemptions. Furthermore, the proposed guidance clarifies that when a taxpayer acquires used property in a like-kind exchange, only the “new funds” basis (and not the carryover basis) may qualify for bonus depreciation.

To help taxpayers maximize tax savings opportunities under tax reform, they should meet with qualified accountants and advisors who understand all of the nuances of the law and how to apply subsequent guidance to taxpayers’ specific and unique circumstances.

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

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.

Tax Attributes Prove to be a Valuable Tool in Post-Mortem Income Tax Planning for Decedents and Survivors by Jeffrey M. Mutnik, CPA/PFS

Posted on August 21, 2018 by Jeffrey Mutnik

Under U.S. tax laws, the losses, credits and adjustments that a taxpayer is entitled to claim on his or her tax returns are unique to that specific individual, regardless of whether or not he or she is married and/or annually files joint tax returns with his or her spouse. Therefore, the tax attributes that an individual may use to reduce gross income and federal tax liabilities will not automatically transfer to a surviving spouse or the beneficiary of a decedent’s estate. One example of this concerns business losses.

The services that a business owner performs on a daily basis ultimately influence the overall success and profitability of that company. If the owner is unable to work due to illness, injury or death, it is likely that the business will suffer and generate losses. When businesses are structured as sole proprietorships or pass-through entities, such as partnerships or S Corporations, the owners, or partners, will report these losses on their federal tax returns.

When a business’s losses exceeded taxpayers’ income in 2017 or prior, taxpayers created Net Operating Losses (NOLs) that they could carry backwards to claim refunds on taxes already paid during the two preceding tax years. If a taxpayer died in the year of the NOL, he or she was able to transfer the carryback refunds to his or her estate. This is no longer the case, as the Tax Cuts and Jobs Act that went into effect in 2018 eliminates NOL carrybacks.

While the new tax laws do preserve taxpayers’ ability to carry forward NOLs to offset income in future years, this benefit does not typically apply to taxpayers who pass away in 2018 or later, as they will not file any additional tax returns in the years following their deaths. Moreover, because those losses are unique to the deceased taxpayer, they are not transferrable to the decedent’s estate or to his or her surviving spouse to use in the future. However, all is not lost. In fact, there are a few opportunities for taxpayers to absorb some or all of their spouses’ NOLs in the year of their spouses’ deaths, which could essentially create tax-free income for their heirs.

To take advantage of such losses, a surviving spouse should choose to file federal income tax returns as “married filing jointly” for the year in which his or her spouse passes away. Doing so will allow the survivor to use the decedent’s unused NOL (either from current or prior years) to offset the couple’s combined reportable income for the year. After December 31 in the year of the decedent’s death, however, those losses will disappear and no longer be available to the decedent’s heirs. Therefore, it behooves a surviving spouse to meet with tax advisors as soon as possible after the death of a husband or wife in order to project taxable income for the year and analyze the efficacy of recognizing income by year-end.

One way that a surviving spouse may make use of the NOL of a late husband or wife is to create income by withdrawing money from a retirement account. If the surviving spouse does not need the cash from a retirement plan distribution, he or she can roll over the distribution into a Roth account. It even makes sense for a surviving spouse to take a retirement plan distribution that exceeds the amount of the decedent’s NOL for three reasons:

  1. The NOL will eliminate the surviving spouse’s tax liability on the bulk of the income generated by the distribution, leaving the remaining amount subject to tax at the lowest level(s) of the graduated tax rates;
  2. An individual can avoid tax on a voluntary retirement plan withdrawal that is not a required minimum distribution (RMD) when they return the withdrawn amount to his or her retirement account within 60 days; and
  3. Withdrawing cash from a retirement account will lower the asset base of the survivor’s deferred income, thereby lowering the amount of future RMDs.

Another way that individuals may use deceased spouses’ NOLs is to create income in the year that their husbands or wives pass away by selling appreciated assets that the decedents did not own. The NOL would essentially eliminate the taxable gain that such a sale typically would trigger. Nonetheless, it is important for survivors to know that the wash-sale rules do not apply to assets sold for a gain. As a result, they can repurchase the sold asset(s) immediately and receive the benefit of new, stepped-up tax basis.

As a final option, taxpayers may rely on the tried-and-true methods of accelerating income and/or deferring deductions to absorb a decedent’s loss that would otherwise go unused.

It is common for individuals to overlook the importance of tax attributes during a chaotic year in which a loved one passes away. Working with advisors who have the knowledge and experience in these matters can yield significant tax benefits.

 

About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director of Taxation and Financial Services with Berkowitz Pollack Brant Advisors and Accountants, where he provides tax- and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.

 

 

The Real Way to Plan a Wedding: Keep Yours, Mine and Ours in Mind by Sandra Perez, CPA/ABV/CFF, CFE

Posted on August 21, 2018 by Sandra Perez

Wedding planning can be an exciting time. However, the anticipation of preparing for one’s big day should not be overshadowed by the fact that marriage is a contract involving a broad range of legal and financial obligations defined by the state where you live. In addition to shopping for a dress, selecting floral arrangements and creating seating charts, spouses-to-be should recognize that they and their future spouses have a right upon divorce to an equitable distribution of property and financial support. While it is difficult to think about the potential end to a marriage that has not yet begun, failing to plan properly for this can spell disaster for your future financial well-being.

When you say “I do,” you not only vow to join lives with another person for better or for worse, you are also promising that you will share the assets you and your spouse acquire during the marriage, and you will give up your rights to half of those marital assets in the event of a future divorce. All too often, couples do not recognize that the non-marital assets they bring with them into a legal union can later become marital property, which the courts can and will divide in divorce proceedings.

For example, if you own a business or a home before saying your marriage vows, those assets and the income they generate can become marital property subject to equitable distribution in the future. Similarly, if you are the recipient of a significant inheritance or gift during your marriage, your spouse may have a right to claim half of the value of those assets, including any appreciation in value, when the marriage ends. Avoiding these challenging issues requires couples to understand the concept of comingling non-marital and marital assets.

 Comingling Marital and Non-Marital Property

Under Florida law, non-marital assets are not subject to equitable division upon divorce. You may leave the marriage with the property you brought with you, along with any appreciation in the value of those personal possessions. However, if you “comingle,” or combine, your non-marital property with that of your spouse, or with property you both acquired together during marriage, it can become a marital asset subject to equitable division for which your spouse is entitled one half of the value.

Unfortunately, a very thin and easy-to-cross line exists when trying to distinguish between marital and non-marital assets. At the most basic level, once you withdraw money from your individual, premarital savings account and deposit it into your joint marital account, you are comingling funds. Consider what would happen if you owned a condominium prior to your wedding day. If you sold that premarital apartment during your marriage and used the sale proceeds towards a new home for you and your spouse, you essentially comingled the value of that premarital condo and turned into a marital asset. Likewise, if, during your marriage, you receive a gift of interest in a family business that you help grow during the marriage, the increase in the value of that gift will be subject to division upon divorce.

 How to Protect Pre-Marital Assets

While no one wants to begin a marriage with thoughts of it terminating, the unfortunate realty is that half of all marriages end in divorce. Pretending otherwise can have damaging financial consequences. The best way to protect yourself and your assets before getting married is to consider a prenuptial agreement that details what will happen to you and your spouse financially in the event of a divorce.

Prenups are no longer reserved just for the uber-wealthy. In recent years, they have gained in popularity across all income levels, especially as both spouses increasingly share in the responsibilities as family breadwinners. In fact, couples can agree in a prenup how they will use their respective incomes earned during their marriage. Moreover, with the high rate of divorce, many well-established individuals are entering into second and third marriages, blending families and bringing with them significant assets, including established businesses and retirement savings as well as the financial care for minor children. Therefore, a prenup would be important to protect your premarital assets for the benefit of your children from a previous marriage.

Prenuptial contracts open the door for couples to share detailed information about the income, assets and debts they bring individually into a marriage. The prenup helps to ensure that neither party enters into a marriage financially blind. It creates a dialogue between the spouses-to-be to share their financial goals, values and expectations. This is especially important when considering that financial issues are one of the leading causes of divorce.

Couples should remember that people and circumstances could change over the course of a marriage, whether it be a few years or many decades. The decisions they make permanent today, before they marry, will undoubtedly affect their future – together or separately. Therefore, when preparing a prenuptial agreement, couples should look down the road and consider if the decisions they agree to today, under current circumstances, will still make sense and be considered fair to them in five, 10 or 25 years, after they have children and their assets appreciate in value. A well-drafted prenup with the benefit of experienced legal and financial counsel can include language that anticipates these factors and can even feature a “sunset provision” that voids the agreement automatically after a certain period of time. These advisors, which may include CPAs, should also have experience in family law and be able to run the numbers to help you understand the current and future financial implications and tax consequences of the decisions you agree upon in a prenup you sign today.

In the current legal environment, it is not easy to challenge or break a prenuptial agreement, especially if there was full financial disclosure and both parties had separate legal representation. However, couples may agree, at some point during their marriage to terminate a prenuptial contract. This should be done formally, with caution, under the guidance of legal and financial counsel.

While even the idea of a prenuptial agreement can be uncomfortable to bring up during an engagement, the truth is that by being proactive and addressing the ugly side of marriage statistics up front, couples can protect themselves and their ability to maintain their financial independence – whether together or apart – throughout the remainder of their lives.

 

About the Author: Sandra Perez, CPA/ABV/CFF, CFE, is director of the Family Law Forensics practice with Berkowitz Pollack Brant, where she works with attorneys and individuals with complex assets and income to provide expert witness testimony and assistance with settlements. Her expertise includes valuing business interests, analyzing income, determining net-worth, preparing financial affidavits, and calculating alimony and child support obligations and litigation support in all areas of divorce proceedings. She practices in the tri-county area of South Florida and can be reached at (954) 712-7000 or via email info@bpbcpa.com.

Tax Reform Can Mean Bigger Depreciation Deductions for Businesses by Cherry Laufenberg, CPA

Posted on August 16, 2018 by Cherry Laufenberg

Small businesses that are considering capital investments in new or used equipment, machinery, vehicles, furniture, or even buildings, can start shopping in 2018 to take advantage of temporary tax saving opportunities contained in the Tax Cuts and Jobs Act (TCJA).

Bonus Depreciation

The new law allows businesses to immediately write-off more of the costs they incur for an expanded list of qualifying tangible personal equipment and software that they purchased or financed during the tax year.

For example, both new and used assets purchased after Sept. 27, 2017, are eligible for 100 percent bonus depreciation in the first year that they are ready and available for a taxpayer’s business purposes. Prior to the TCJA, bonus depreciation was limited to 50 percent and was applicable only to new property. Essentially, businesses may now immediately recover the full costs of the investments they make to grow their operations.

This benefit will remain in place until 2023, when the deduction is set to begin decreasing until it completely phases out in 2026.

Section 179 Property

To further encourage businesses to invest in themselves and flex their purchasing power, the TCJA also increases the amount that businesses, including developers and owners of commercial real estate, may elect to deduct in a year in which they purchase and put into service new and used Section 179 property, which include:

  • tangible assets used in a trade of business, including furniture, computers, machinery and other equipment,
  • off-the-shelf software,
  • property attached to but not a structural component of a building, and
  • improvements, such as roofing, air conditioning/heating, fire protection and security systems, made to existing non-residential buildings that were first placed in service prior to Dec. 31, 2017.

Beginning in 2018, the maximum allowable deduction doubles to $1 million, up from $500,000 the prior year, on new and used equipment purchased and placed into service after Dec. 31, 2017. When total equipment costs exceed $2.5 million, the deduction will decrease on a dollar-for-dollar basis. Both the spending cap and the amount of the deduction

Tax Planning Opportunities

With an even greater number of assets qualifying for an even larger deduction under both bonus depreciation and Section 179 expensing, businesses will be able to write off more of their operational costs up front and free up more of their capital to expand and improving earnings potential for the future. Under some circumstances, a business asset will qualify for both tax incentives, which will allow businesses to deduct the full purchase price of those assets from their gross income. In other situations, taxpayers will need to determine which provides them with greater value in the current year and far into the future.

It is important that business owners not only identify and leverage the cost savings they may reap by investing in qualifying property beginning in 2018, they must also understand how these provisions will affect their other tax liabilities under the new law. The best way to accomplish this is to engage in advanced planning under the guidance of experienced financial advisors and tax accountants.

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 info@bpbcpa.com.

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.

Tax Reform Exempts More High-Net-Worth Families from the Dreaded Estate Tax by Rick Bazzani, CPA

Posted on August 15, 2018 by Rick Bazzani

While the Tax Cuts and Jobs Act (TCJA) signed into law in December of 2017 did not make many adjustments to the existing gift, estate and generation-skipping transfer tax regimes, what it did do beginning on Jan. 1, 2018, is significant.

Doubles the Estate and Generation-Skipping Transfer Tax Exemption

Under the new law, fewer taxpayers will need to worry about paying federal estate tax. In 2018, the exemption doubles from $5.6 million in 2017, to $11.18 million for single-filing taxpayers, and $22.36 million for married couples filing joint tax returns. The amount of the exemption will be indexed for inflation until 2026, when it is set to return to its 2017 pre-tax reform limit.

What this means is that individual taxpayers may transfer up to $11.18 million in assets to their heirs in 2018 (or up to $22.36 million for married couples filing jointly), either during life or at death, without incurring federal estate taxes. Anything above the excluded amounts is subject to the same 40 percent flat tax rate that has been in effect since 2013.

Retains Step-Up Basis for Assets Transferred at Death

Beneficiaries who inherit the assets of a deceased taxpayer between 2018 and 2026, when the estate tax provisions of the TCJA are set to expire, will continue to receive a step-up in the value of those assets. Therefore, a beneficiary’s costs basis in an inherited asset will be readjusted upward to the asset’s fair market value at the time of the benefactor’s death. This allows beneficiaries to minimize or even eliminate their exposure to capital gains tax when they sell inherited assets in the future.

Maintains Annual Gift Tax Exclusion

Giving gifts allows taxpayer to shield their wealth from future estate tax liabilities by removing assets and their future appreciation value from their taxable estates. Under the new tax laws, taxpayers may annually gift up to $15,000 in cash or assets to as many people as they choose free of transfer taxes as well as an unlimited amount of gifts in the form of tuition and medical expenses paid directly to a qualifying institution on behalf of another individual. For married couples, the gift tax exclusion in 2018 is $30,000. Any gifts above these amounts will be subject to 40 percent tax rate.

 Reduces Income Tax Brackets for Trusts and Estates

In addition to lowering the existing seven income tax brackets, the TCJA also reduces the top bracket for estates and trusts to 37 percent on taxable income in excess of $12,500.

Warnings and Planning Opportunities

Despite the generous provision relating to the estate tax, the new law currently calls for the increased exemptions to expire on Dec. 31, 2025, and revert to their 2017 limits in 2026.

Without the ability to look into a crystal ball and know what Congress will do over the next eight years, high-net-worth families must plan appropriately under the guidance of experienced financial advisors and tax accounts. This may include establishing trusts, if none already exists, and maximizing gifts to these estate planning vehicles. These gifts effectively transfer assets out of an individual’s taxable estate to family members or other named beneficiaries and allow grantors to use trust assets to fund life insurance policies or, in some instances, pay income tax liabilities while they are alive.

 

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

 

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

Tax Reform Provides Senior Citizens with Opportunities to Maximize Tax Benefits of Charitable Giving by Adam Cohen, CPA

Posted on August 08, 2018 by Adam Cohen

It is estimated that less than half the number of taxpayers who previously claimed deductions for charitable contributions will continue to do so beginning in 2018, when the rationale for itemizing deductions may no longer make fiscal sense. However, the passage of the Tax Cuts and Jobs Act (TCJA) does provide an opportunity for taxpayers age 70 ½ and older to continue to maximize the benefits of their philanthropic giving when they plan ahead.

Charitable Deduction Limits Under Tax Reform

Tax reform under the TCJA, allows taxpayers to continue to claim their charitable contributions as itemized deductions that they may subtract from their taxable income. Nonetheless, the law also limits the deductibility of several itemized expenses, eliminates many of the miscellaneous deductions that taxpayers previously used to reduce their tax liabilities while also doubling the standard deduction that is available to all taxpayers. As a result, more taxpayers will opt to simply claim the standard deduction and potentially lose any tax benefit from their charitable efforts. That is, unless they are retirees receiving required minimum distributions (RMDs) from their Individual Retirement Accounts (IRAs).

Converting RMDs into Charitable Contributions

The Internal Revenue Code requires U.S. taxpayers to begin taking annual RMDs from their traditional IRAs by April 1 in the year after they turn 70 ½, or risk significant penalties. The amount of the taxable RMD is calculated separately for each IRA a taxpayer owns, but the actual aggregate amount he or she receives may be paid out of one of more of his or her IRA accounts.

Individuals over the age of 70 ½ seeking to reduce their tax liabilities in a given year may transfer up to $100,000 of their annual RMD directly to a qualifying charity and exclude that amount from their taxable income. By making these qualified charitable distributions (QCDs), qualifying taxpayers meet their annual RMD requirements, avoid including distributed amount in their taxable income and allow those funds to further their philanthropic goals and support a charitable organization in need.

It is important to remember that while QCDs can yield significant tax savings, especially for high-earning taxpayers, they are neither considered income nor may they be claimed as deductions on an individual’s federal tax return. Moreover, special care should be taken to ensure the QCD is transferred directly by the IRA trustee to a qualifying charitable organization. If the IRA owner hands a check to the charity, the payment will not qualify for QCD treatment, even if the check comes from the IRA and is made payable to a charitable organization.
While the TCJA will make it harder for taxpayers to maximize the value that itemizing deductions once provided to them, philanthropic-minded individuals will continue to give to charity and some may even eke out a tax benefit.

 

About the Author: Adam Cohen, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via e-mail at info@bpbcpa.com.

 

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.

It’s Not too Late for Businesses to Plan Ahead for Hurricanes and Other Disasters by Daniel Hughes, CPA

Posted on August 07, 2018 by Daniel Hughes

We are getting to the peak of hurricane season but it is not too late for businesses to prepare for the threat of a potential disaster that can interrupt normal businesses operations and cause millions of dollars in damages and lost revenue. In fact, by taking action now, businesses cannot only avoid the avalanche of storm-prep stress that descends on Floridians as soon as high winds threaten our shores, they can also be better prepared to recover and rebuild after a storm passes.

Following are just a few things that businesses should consider as part of a well-thought-out disaster-preparedness and business-continuity plan.

  • Develop an emergency plan or review and update last year’s plan based on changes in circumstances, personnel, etc.;
  • Review your property insurance and business interruption policy, and understand the terms, policy limitations, exclusions and other loss considerations. Up-front preparations can help you to mitigate losses and more quickly recover lost revenue;
  • Update contact information to help you communicate with employees, vendors, customers and any other people your business relies on for maintaining and sustaining normal operations;
  • Ensure records of inventory, orders and events are up-to-date;
  • Confirm accuracy of historic, current and projected financial data, including balance sheets, profit and loss statements, budgets;
  • Document valuables, including taking photographs and video of business assets, such as real estate, equipment, machinery;
  • Create and store in a safe place (such as the cloud) electronic copies of important business documentation and inventory of assets; and
  • Have data duplication, backup and recovery systems in place to help you access files and restore data as quickly as possible.

 

The forensic accountants with Berkowitz Pollack Brant have extensive experience helping businesses prepare for, document and defend commercial insurance claims that result from natural or man-made crises.

 

About the Author: Daniel S. Hughes, CPA/CFF/CGMA, CVA, is a director with 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 at the CPA firm’s Miami office at (305) 379-7000 or via e-mail at info@bpbcpa.com.

New York City Businesses May Begin Receiving Tax Credits against Commercial Rent Liabilities by Michael Hirsch, JD, LLM

Posted on August 02, 2018 by Michael Hirsch,

Beginning on July 1, certain small businesses renting commercial real estate in New York City may qualify for a tax credit that can potentially exempt them from paying any commercial rent tax (CRT) liabilities for the 2018 tax year. Business owners should meet with state and local tax (SALT) advisors to understand how they may qualify for the credit and what responsibilities they may still have to taxing authorities.

New York City imposes a 3.9 percent tax on the base rent that tenants pay for commercial real estate located south of 96th Street in Manhattan. Historically, the tax applied to all taxpayers with a minimum of $250,000 in annualized base rent, which includes the amount of lease payments, real estate taxes and other expenses paid to a landlord less any amount the tenant received from a subtenant. However, in December 2017, the mayor signed into law an exception for small businesses that meet the following criteria:

  1. Total business income reported on federal tax returns for the preceding year was less than $5 million, and
  2. Annual base rent for the current year is less than $500,000

A partial credit against the New York City CRT is available to taxpayers whose total income is between $5 million and $10 million and who have an annual base rent that does not exceed $550,000.

Despite the potential elimination of CRT tax liabilities, eligible taxpayers with at least $200,000 in annual base rent are still responsible for filing CRT returns. In addition, entities with common ownership must remain on the lookout for how the city will calculate the income of entities with common ownership for purposes of calculating the income threshold.

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 individuals and businesses 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 info@bpbcpa.com.

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.

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