berkowitz pollack brant advisors and accountants

Monthly Archives: November 2018

There’s Still Time to Secure Health Insurance for 2019

Posted on November 29, 2018 by Adam Cohen

The open-enrollment period for U.S. taxpayers to secure medical health insurance for 2019 via the Health Insurance Marketplace runs from Nov. 1, 2018, through Dec. 15, 2019. While the new tax law introduced on Jan. 1, 2018, does eliminate the Obamacare individual shared responsibility penalty for individuals who go without insurance in 2019, there are other reasons taxpayers should consider enrolling in a marketplace plan for 2019.

Some states, such as the District of Columbia, Massachusetts and New Jersey, have implemented their own individual mandates that will assess penalties on residents who do not have minimum essential health care coverage in 2019 and who do not qualify for an exemption.

In addition, by enrolling in a marketplace health care plan, you will continue to receive many of the benefits and incentives that the Affordable Care Act (ACA) introduced, such as guaranteed coverage for pre-existing conditions and free annual physical exams and preventive care immunizations, screenings and counseling. Without a marketplace plan, you may be denied coverage from a private insurer, or you may be unable to afford care and treatment for an unexpected illness or injury to you or your family members.

Due in part to the elimination of the individual mandate, most families should expect to pay higher premiums for plans in 2019 than they did in prior years. However, the premium tax credit has also increased for 2019, helping qualifying taxpayers to subsidize their costs for coverage. High-income families that do not qualify for the premium subsidy may want to consider setting aside pre-tax dollars into health savings accounts (HSAs) to help them pay healthcare costs, including marketplace plan premiums.

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.

IRS Introduces Per Diem Rates Effective October 2018 by Dustin Grizzle

Posted on November 27, 2018 by Dustin Grizzle

The IRS issued its annual update to the daily rates that employers may use to reimburse employees for lodging, meals and other incidental expenses that workers incur while traveling for business purposes.

The per diem rates are fixed amounts that employers may use to more easily reimburse workers for ordinary and necessary business travel expenses without requiring the collection and calculation of actual costs incurred. These payments are not considered taxable income to employees as long as workers substantiate their claims with detailed expenses reports. However, should a business reimburse an employee for more than the per diem rate, the employee is responsible for paying taxes on that amount.

Effective Oct. 1, 2018, the per diem meal and incidental allowances for taxpayers in the transportation industry are $66 within the continental U.S. and $71 for travel outside of the region. These expenses include all meals, laundry and dry cleaning services, and tips provided to food servers, porters, baggage handlers and other hotel employees.

For purposes of the high-low substantiation method, the per diem rates are $287 for travel to a high-cost locality and $195 for travel to any other locality within the continental U.S. The per diem rates for solely meals and incidental expenses is $71 for travel to high-cost localities and $60 for any other area within the continental U.S. In addition, the IRS updated its list of localities, including New York City, San Francisco and Aspen, Colo., which have a high cost of living during all or a portion of the year and therefore have a federal per diem rate of $241 or more.

The per diem rates are especially important to workers in 2018 because the Tax Cuts and Jobs Act eliminates their ability to deduct unreimbursed job expenses and miscellaneous itemized deductions through 2025. Therefore, it behooves workers to speak with their employers and request reimbursements for those business-travel expenses in order to recoup even a portion of the money they personally lay out to pay for costs that are necessary for their jobs.

About the Author: Dustin Grizzle is an associate director of Tax Services with Berkowitz Pollack Brant, where he provides corporate structuring, tax-planning and compliance services to real estate developers, management firms and investment companies; manufacturing businesses with large inventories; and high-net-worth families. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 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.

 

 

Are you Ready to meet the January Tax Filing Deadline? by Laurence Bernstein, CPA

Posted on November 26, 2018

With the tax year coming to an end, it is critical that business owners remember they have obligations to report by Jan. 31, 2019, the compensation they paid to employees and to all independent contractors and service providers during the prior tax year. This leaves businesses with limited time after an often hectic holiday season to review their records and issue Forms 1099-MISC to each non-employee to whom they paid more than $600 during the year.

To help your business expedite this process and meet the filing deadline, consider working with Berkowitz Pollack Brant’s Accounting Intelligence team. Our advisors can help you identify and gather information about contactors and vendors to whom who have a reporting obligation. Subsequently, we will prepare the required IRS forms and submit them on your behalf to both the government and each vendor who receives compensation from you. If you are required to file more than 250 information returns, which include W-2s and 1099s, you must file electronically or you will be subject to significant IRS penalties.

In addition, with the prospect of the New Year, it is a good time to review your accounting records and ensure that you have on file Forms W-9 for each and every vendor you pay. This will help enable you to more easily determine which vendors should receive Form 1099-MISC from you next year.

To learn more about how we can help you to ease the administrative burden of your information reporting requirements, please contact one of our Accounting Intelligence team members at (954) 712-7066.

About the Author: Laurence Bernstein, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant and the leader of the firm’s Accounting Intelligence group.

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

 

 

There’s still Time to Improve your Tax Position for 2018 by Jeffrey M. Mutnik, CPA/PFS

Posted on November 26, 2018 by Jeffrey Mutnik

The passage of tax reform at the end of 2017 leaves many individuals in a better tax position than they were one year ago. Nevertheless, understanding how to maximize the potential tax-savings opportunities contained is the provisions of the new law is not a simple endeavor. To help avoid an unwelcome tax liability in April of 2019, taxpayers should take the time now to implement some tried-and-true year-end strategies as well as some new planning tips around the changes brought about by the Tax Cuts and Jobs Act (TCJA).

Check your Withholding and Estimated Tax Payments

The new withholding tables combined with expanded tax brackets and the elimination of certain deductions means that you may not have been paying your fair share of taxes on income earned during the year through quarterly estimated tax payments and/or the amount employers withhold from paychecks. If you haven’t done so already, contact your tax advisors to do a withholding checkup and project an estimate of your tax liability for 2018. To avoid a potential penalty for tax underpayments, you may request your employer increase the withholding on your last paychecks for 2018 or your year-end bonus. Alternatively, you can make a fourth-quarter estimated-tax payment to the IRS before Jan. 15, 2019, but doing so will be subject you to a penalty for failing to pay taxes as-you-go during 2018.

A withholding checkup is equally important for retirees to ensure that the government withholds enough taxes from Social Security, and they are prepared to pay the tax liabilities on the distributions they receive from retirement accounts, including 401(k)s and traditional IRAs. It may make sense to withhold income tax on retirement account withdrawals. Such withholding can also be used to reduce or avoid a penalty for not paying enough estimated tax that was due earlier in the year. If the distribution is not otherwise required or needed, it can be rolled over into another retirement account within 60 days to avoid any additional, unwanted tax exposure, including funds to replace the amount of withholding.

Will you be Able to Itemize or will you take the Standard Deduction?

It is expected that far more taxpayers will claim the higher standard deduction in 2018 due to the elimination and/or limitation of many of the tax breaks that they previously itemized on their returns, including a $10,000 cap on property, state and local taxes, restrictions to the deduction for mortgage interest on new loans executed after Dec. 31, 2017, and the elimination of deductions for miscellaneous expenses, such as tax preparation and other professional service fees. However, high-net-worth taxpayers may still have an opportunity to maximize their itemized deductions before the end of the year by accelerating their charitable contributions into 2018 or making more visits to the doctor and scheduling last-minute procedures on order to exceed the standard deduction threshold of $12,000 for single taxpayers or $24,000 for those married filing jointly. Also, consideration should be given to bunching your charitable deductions in January and December of the same year to maximize the use of the standard and itemized deductions over a multi-year period.

Max Out Retirement Plan Contributions, Remember RMDs

One of the few deductions that survived tax reform are the contributions that taxpayers make to their retirement-saving plans. For 2018, you can contribute as much as $5,500 to a traditional IRA ($6,500 if you are age 50 or older) or $18,500 to a 401(k) plan ($24,500 if you are age 50 or older) and reduce your taxable income by that amount. If you are an employee, you have until Dec. 31, 2018, to increase your 2018 401(k) contribution through salary deferral. If you are a business owner, you have until April 15, 2019, to make a pre-tax contribution to your solo 401(k) and apply it to your 2018 tax return. The deadline for making contributions to IRAs, including ROTH IRAs, is April 15, 2019.

If you are 70 ½ years of age or older and you did not work in 2018, you must take a taxable required minimum distribution (RMD) from your 401(k) and/or IRA by Dec. 31, 2018. If you fail to take the RMD, you or risk a penalty of 50 percent of the undistributed amount. If you are still working, you may postpone the RMD until the year in which you actually retire. If you turned 70 ½ years old this year, you have a one-time option to defer your initial RMD until April 1, 2019. While this will allow you to effectively defer 2018 taxable income into next year, it will also require that you take two RMDs in 2019 and essential double your income for that year.

Make use of FSA Funds

Check on the balance in your flexible spending account (FSA) because you will lose any remaining funds that you do not use by the end of the year. If you have money left in your FSA, schedule doctors’ appointments, visit the dentist, refill subscriptions or buy new glasses before Dec. 31.

Harvest Capital Losses

To minimize your exposure to capital gains taxes, you should consider selling underperforming investments before the end of the year to generate a tax loss that can reduce your taxable income. Tax losses can be used to offset gains of matching holding periods (e.g. short-term losses can offset short-term gains and long-term losses to offset long-term gains) and allow investors to maximize the use of their personal tax attributes. However, investors should be careful to avoid the wash-sale rules that could disallow the use of a realized loss, as well as consider whether or not the sale of an asset makes sense in relation to their existing investment strategy. Disposing of an asset solely for a tax benefit may disrupt and derail your long-term financial goals.

Along the same lines, taxpayers who sold cryptocurrency, such as bitcoin, in 2018 should be prepared to pay taxes on any gains resulting from those transactions.

Defer Capital Gains

The tax code offers a few opportunities for taxpayers to defer or even eliminate capital gains from the sale of certain assets. For example, investors can defer taxes on the sale of real estate by completing a 1031 exchange and reinvesting those gains in similar like-kind real property. In addition, the new tax law’s Opportunity Zone program allows taxpayers to defer or even eliminate capital gains tax when they reinvest the proceeds from an asset sale into a business or property located in any of the nation’s more than 8,000 opportunity zones.

Give Gifts to Charity and Family

By making gifts of money or property, either to charities, family members or friends, you may be able to reduce the amount of your income that is subject to tax. For example, donations to qualified charitable organizations are fully deductible (up to certain income thresholds) against both income taxes and the alternative minimum tax (AMT), as long as you mail or charge the donation to your credit card before Dec. 31, 2018. Furthermore, you may donate up to $100,000 of your 2018 RMD directly to a charity by December 31 to avoid including that amount in your taxable income.

In addition, you may have an opportunity to reduce your future taxable income and protect your assets from exposure to estate and gift taxes if you give gifts of $15,000 or less to as many people as you wish before Dec. 31, 2018. For married couples, the maximum amount that may be excluded from taxes in 2018 is $30,000. It is important to remember that there is no annual limit on the amount you may gift tax-free to your spouse unless he or she is not a U.S. citizen.  Similarly, you may pay as much as you like directly to an educational or medical institution to cover the costs of tuition or medical expenses for another person without gift tax implications. Gifts above the statutory threshold will require you to file a gift tax return, but they will not cause taxation until you have exhausted the enhanced individual lifetime exclusion of $11.18 million, $22.36 million for married couples.

Look for Opportunities to Minimize Business Tax Liabilities

The TCJA reduced the corporate tax rate to 21 percent and introduced a potential deduction for qualifying pass-through business entities. To be eligible for the full benefit of the 20 percent pass-through deduction, businesses should assess their lines of business, the ways in which they pay wages to workers and whether they own or lease the property they use to generate business or trade income. In addition, business owners may consider purchasing expensive equipment before the end of the year in order to claim a full deduction for those costs in 2018 and/or make improvements to nonresidential property to qualify for an additional deduction of up to $1 million.

Protect your Assets

The entity you select to hold your personal and business assets will have far-reaching effects on your exposure to income, estate and gift taxes; privacy; protection from creditors; and control over distributions of assets. The end of the year is a good time to meet with professional advisors to review the assets holding structures you currently have in place and make adjustments, as needed, to align with changing life circumstances.

The advisors and accountants with Berkowitz Pollack Brant and its affiliate Provenance Wealth Advisors work with U.S. and foreign citizens and businesses to develop tax-efficient solutions that meet regulatory compliance and evolving financial needs.

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

Not Sure of your Tax Filing Status? Ask a CPA by Adam Slavin, CPA

Posted on November 21, 2018 by Adam Slavin

When taxpayers prepare their annual returns, they must select a filing status, which determines their eligibility for certain credits and deductions and ultimately influences the amount of federal income tax they owe. For some individuals, the selection is decided for them based on whether or not they are married on the last day of the calendar year. However, under certain circumstances, taxpayers may qualify for more than one filing status. When this occurs, taxpayers may choose the one that results in the lowest tax liabilities they owe to the federal government. Making this determination may require the guidance of professional accountants who can calculate taxpayers’ obligations under each qualifying filing status.

Following are descriptions of the five filing statuses available to taxpayers:

  • Single. Taxpayers are not married or they are divorced or legally separated under state law.
  • Married Filing Jointly. Taxpayers are married couples who file a joint federal tax return.  This filing status also applies to widows whose spouses passed away in the tax year covered for a filed return.
  • Married Filing Separately. Married couples can choose to file two separate tax returns when each spouse wishes to be responsible solely for his or her own tax liabilities. In addition, married couples may choose to file separately when doing so will result in less tax owed than if they file a joint tax return.
  • Head of Household. This status applies to unmarried taxpayers who meet certain rules, such as having paid more than half the cost of keeping up a home for themselves and for another qualifying person. It is important for taxpayers to review the rules and make sure they qualify to use this status.
  • Qualifying Widow(er) with Dependent Child. A taxpayer who has a spouse that died during one of the previous two years, and they have a dependent child may qualify for this filing status.

About the Author: Adam Slavin, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practices, where he provides tax planning and consulting services to high-net-worth individuals and closely held business. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 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.

The Building Blocks of a Strong and Resilient Organizational Culture by Richard A. Berkowitz, JD, CPA

Posted on November 16, 2018 by Richard Berkowitz, JD, CPA

Businesses today are challenged by what may be considered the most rapid pace of change in history. New technological advancements and accelerated economic swings are creating a perfect storm for which organizations have little time to prepare and adapt for survival, let alone for success. However, the one beacon of light that an organization can rely on to guide it through these treacherous waters and protect it from irreparable damage is its organizational culture. The question then becomes, what is an organizational culture and how can an entity develop and hone it to serve as its lighthouse in a storm.

Organizational culture can be defined as the collective norms, values, attitudes and work habits that the members of an organization share and agree to uphold. To put it another way, if a company’s brand is its face, its organizational culture is its soul. It reflects the formal and informal behaviors, interactions and underlying traditions, beliefs and processes that tie individuals to an organization and keep them there, whether they be loyal employees, clients, business partners or even donors. It is how individuals would describe the organization, its structure, unique attributes and vision, under oath, using both tangible and intangible concepts. In this sense, an organization’s culture must align with its vision and subsequently be woven into its strategy.

Yet, unlike the fact-based economic and contractual nature of business, corporate culture is both subjective and objective, and therefore much more difficult for an organization to standardize. While a culture can change based on the influence of internal and external sources, including the behaviors of an organization’s leadership, a CEO or business owner cannot dictate or will a cultural change without backing up his or her words with action.

Following are eight strategies that organizations can rely on to build and strengthen organizational trust and a cohesive culture that becomes the motivation and rallying cry for its success and the success of its individual employees.

Create a Compelling and Shared Vision

A vision helps an organization identify what it hopes to be famous for and connects workers to that shared goal. Not only does it encourage employees to work together, but it also centers them around a common purpose that inspires them to learn, grow and give their best efforts every day. When you involve employees in the vision-planning process, you allow them to have a voice and contribute to creating something special and meaningful. Consequently, they are more likely to be engaged in their jobs and loyal to their employers.

Define the Culture to Support Business Strategies

Businesses must invest in policies and practices that facilitate employees’ efforts to integrate the demands of their professional work with the obligations of their personal lives. Special care should be taken to help employees avoid a tug of war between work and family, which will ultimately undermine the goals of the organization and lead to higher incidence of employee burnout and turnover. Instead, select a set of guiding behaviors to define the desired culture and reinforce them through a variety of measurable team-building and team-training programs.

Spend Quality Time Together.

Most working professionals spend the majority of their time on the job, whether that be in an office or out in the field with coworkers, clients or business partners. While this requires workers to get along, it does not always translate to lasting friendships, which ultimately affect loyalty and culture. Instead, organizations should look for opportunities to gather together employees and their family members outside of the work environment, where they can interact on a more social level and create strong emotional connections that tie workers to each other and to the organizations themselves.

Create Quality Traditions

Organizations can strengthen genuine connections and reinforce loyalty by developing high-quality and consistent traditions, practices and other experiences that members of an organization share on a regular basis. For example, a business may employ a policy of dress-down Fridays, host an annual bring-your-child to work day or encourage workers to bring their pets to the office. Similarly, organizations can help workers build deep connections in their communities by organizing teams to participate in charitable fundraising events or volunteering their time to help others in need. The more these traditions involve family members, the more fun workers will have and the more emotional their connections will be to the organization.

Improve Organizational CommunicationA strong and resilient culture cannot develop in a vacuum. Organizations must work diligently to create a two-way street of open, honest and transparent communication between all of its members. Moreover, they must recognize when there are weaknesses in this open flow of information and take steps to repair them. Not only should organizations create open discussion forums for their CEOs or presidents, but they should also expect and even encourage workers to ask questions and receive answers.

Help Employees Build Their SkillsPeople want to be a part of organizations that are interested in their development as individuals. A healthy organizational culture provides a stimulating environment that emphasizes and encourages employees’ professional and personal growth. This may involve investment in employee training and education, mentoring and other leadership-development programs as well as annual reviews of worker performance.

Monitor Employee Satisfaction

To gauge the effectiveness of their culture-building strategies, organizations need to look no further than its front-line employees. Are workers satisfied? The only way to answer this question is to ask. By monitoring employee satisfaction on a frequent and consistent basis, organizations can more quickly identify and respond to areas that need improvement.

Make Culture an Ongoing Organizational Commitment

Because an organization’s culture will radiate outside of its workforce to its clients and its bottom line, it is critical that culture programs receive high priority. In fact, a half-hearted commitment to developing and cultivate culture can be far worse than no commitment at all. The goal should be to inspire employee engagement and build genuine connections based on trust, rather than requiring employees to grudgingly comply with a laundry list of top-down rules and regulations.

Creating the right organizational culture is crucial to an entity’s long-term success and profitability. It is the only distinctive and sustainable long-term competitive advantage available to businesses. It starts at the level of internal policies and procedures and extends to how leaders interact with employees and demonstrate their commitment to workers’ individual successes. From there it radiates outside of the organization’s physical walls, affecting the level of services it provides and the reputation that it needs to project to attract and retain quality workers and develop trusted relationships with clients.

About the Author: Richard A. Berkowitz, JD, CPA, is founding and executive chairman of Berkowitz Pollack Brant and Provenance Wealth Advisors (PWA), where he provides business consulting, growth strategies and succession-planning consulting to entrepreneurs and companies. He can be reached at the firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.

 

 

IRS Clarifies Deductibility of Business Meals in 2018 and Beyond by Jeffrey M. Mutnik, CPA/PFS

Posted on November 14, 2018 by Jeffrey Mutnik

The Internal Revenue Code allows a deduction for 50 percent of the cost of a meal at which business is discussed. The language contained in the 2017 Tax and Cuts and Jobs Act reforming the U.S. tax code appeared to imply that businesses could no longer deduct expenses for client meals enjoyed at entertainment events, such as sporting events, concerts, theatrical performances, golf and fishing outings, and cruises. According to the IRS, however, businesses can continue to take advantage of this valuable tax break in 2018, even when they cannot write off the costs of the entertainment activities.

In its most recently issued guidance, the IRS said that companies can continue to deduct 50 percent of the costs they incur for meals with clients at entertainment events, as long as those meals are not lavish, and they are considered ordinary and necessary for the active conduct of the taxpayer’s trade or business. The only other criteria businesses must meet to qualify for the 50 percent meal deduction is to have a receipt demonstrating that they paid for the meal separately from all other entertainment-related expenses, which, in and of themselves, are no longer deductible under the new law.

For example, if a businesswoman treats a client to tickets to a baseball game where she also buys the client a hot dog and drinks, she may not deduct the entertainment expenses of the tickets. However, she can deduct 50 percent of the costs for the food and drinks purchased separately. Yet, if a businessman invites a prospective client to join him at a suite at a basketball game where food and drinks are provided, both the tickets and the food are considered entertainment expenses that are not deductible under the law. The only way the taxpayer can deduct half of the food and beverage expenses is if he has an invoice separating out those costs from the non-deductible entertainment costs of tickets.

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.

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 Expands the Definition of “Small” Businesses and their Accounting Method Options by Richard E. Cabrera, JD CPA

Posted on November 13, 2018 by Richard Cabrera

The tax reform law that went into effect beginning in 2018 expands the definition of small businesses that can now qualify to use the cash method of accounting and ultimately defer the recognition of income and payments of tax liabilities to later years. Unlike other changes contained in the Tax Cuts and Jobs Act (TCJA) that are set to expire in future years, these changes are permanent. As a result, more businesses will be able to ease their record-keeping burdens and potentially receive tax benefits from adjustments in when and how they account for income and expenses.

 Accounting for Income and Expenses

How a business will account for gross income and expenses is typically among the first decisions an entrepreneur will make when setting up a new company. However, in many instances, the decision is determined for the business owner by the tax code, such as when a business produces inventory, when the taxpayer enters into long-term contracts, or when the company is in a particular industry.

Under the cash method of accounting, a business recognizes income at the point in time that it physically receives payment, and it deducts expenses when it pays money out to cover those costs. Conversely, a business using the accrual method of accounting will record income and expenses when a transaction occurs, such as when it sends out an invoice or ships a product, regardless of whether or not the business actually receives or makes a payment at the time the transaction occurs. The business will adjust the income and expenses in the future when payment is made or performance is complete in full or in part.

Traditionally, the cash method of accounting is preferable for businesses with receivables that exceed their payables, such as professional services firms, because it allows them to recognize income when they actually have payment in hand rather than before they receive payment. Conversely, the accrual method of accounting is more suitable for businesses that buy goods or services on credit from suppliers or that receive payments up front from customers before performing services or delivering goods and, therefore, will most likely have payables that are greater than their receivables.

Changes under Tax Reform

For tax years prior to Dec. 31, 2017, businesses with average annual gross revenue of $5 million or less during the prior three-year period qualified to use the cash method of accounting. However, the TCJA increases this gross receipt threshold to $25 million or less, beginning in 2018, while also carving out exceptions for taxpayers who were previously required to use certain accounting rules related to how to account for inventories, how to capitalize costs and how to treat certain long-term contracts.

In addition, as long as a business falls below the $25 million or less gross receipts test, it may treat inventories as non-incidental materials and supplies or move to a method of accounting that conforms to its “applicable financial statement” method, rather than being required under prior law to follow uniform capitalization rules (UNICAP) and capitalize expenses as part of their inventory costs for tax purposes. As a result, taxpayers that produce real or tangible personal property as inventory for resale may ultimately expense items of inventory in the year of acquisition rather than waiting for it to be sold. When taxpayers qualify, they may deduct non-incidental materials and supplies in the year in which they first use or consume those materials in their operations. In addition to exempting the UNICAP rules to inventory, the new law provides taxpayers with gross revenue below at or below the new $25 million threshold with relief from the other aspects of Section 263A, including with respect to self-constructed assets.

The TCJA’s provisions relating to a change in accounting method also have a significant impact on real estate businesses that now meet the larger gross receipts test of $25 million or less. More specifically, the law expands the universe of developers and home construction businesses that are considered “small contractors” and that are now exempt from using the percentage-of-completion method for accounting for construction contracts that they expect to complete within a two-year period. This change in accounting method provides real estate businesses with the ability to defer income until the point in time that they complete the contract, rather than requiring them to recognize income before construction is finished.

Requesting an Automatic Accounting Change

In an effort to reduce paperwork and ease administrative burdens, the IRS has a streamlined process for eligible taxpayers to request an “automatic” change in the timing of when they may recognize items of income and when they may take deductions. All taxpayers need to do is to complete an application using IRS Form 3115 by the September extended tax-filing deadline for partnerships and S Corporations, or the October extended deadline for C Corporations. There is no fee required for requesting an automatic change from the IRS, and by filing an automatic change in accounting method, taxpayers who meet the income limits do not need to wait for written approval from the IRS.

The expansion of the gross revenue test under the TCJA opens the door for a greater number of businesses to ease their recordkeeping requirements and qualify for an automatic change to the cash method of accounting for federal income tax purposes. The benefits of deferring income, coupled with the tax law’s reduced corporate and individual tax rates, amplify the time value of money that qualifying taxpayers will receive under the new law. However, this provision of the tax reform is not without complexity. As a result, taxpayers should meet with qualified tax advisors and accountants to understand and realize the benefits and potential tax savings they may reap from the new law.

 

About the Author: Richard E. Cabrera, JD, 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 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.

 

 

States Seeking to Fill their Coffers Quickly Adopt New Economic Nexus Laws by Michael Hirsch, JD, LLM

Posted on November 08, 2018 by Michael Hirsch,

Several U.S. states have officially adopted new economic nexus laws in response to the Supreme Court’s June ruling in South Dakota v. Wayfair, which eliminated the physical presence test for determining when states could impose sales tax collection obligations on remote and online sellers located outside their borders.

Effective Oct. 1, 2018, the following 10 states now require online and out-of-state retailers to collect and remit sales tax when their sales of goods or services into those jurisdictions exceed specific sales volume thresholds: Alabama, Illinois, Indiana, Kentucky, Maryland, Michigan, Minnesota, North Dakota, Washington and Wisconsin. Other states will roll out their own post-Wayfair economic nexus sales tax laws over the next 12 months if they have not done so already.

All businesses that conduct sales across state lines, including, but not limited to, online retailers, should review their annual sales histories on a state-by-state basis to determine if the dollar volume and number of transactions they complete in each state exceed the new economic nexus thresholds. Complicating this process is the fact that the annual sales caps that would require sellers to collect tax vary from one state to the next. For example, the lowest transaction threshold is $10,000 per year for out-of-state retail sales into Minnesota, whereas the highest gross receipts/ transaction volume threshold of $100,000 / 200 separate transactions is in effect in states including Illinois, Indiana and South Dakota.

Should retailers identify that they do in fact have sales tax collection obligations in a number of states, they must first register separately with the Department of Revenue in each state and receive sales tax licenses in order to collect, file and pay sales tax in those jurisdictions. It is recommended that taxpayers work with their advisors and accountants to guide them through this potentially complex and time-consuming process. As more states adopt the new sales thresholds for establishing economic nexus, businesses that can get a head start will be better prepared to meet the challenge of compliance in the long run.

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 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.

 

IRS Updates Federal Income Tax Return Form for 2018 by Angie Adames, CPA

Posted on November 06, 2018 by Angie Adames

The IRS recently released a revised draft of Form 1040 that it expects taxpayers to use in 2019 to file their federal income tax returns for the 2018 tax year. The most significant change taxpayers will notice is the smaller size of the form. However, despite the new postcard-size 1040, taxpayers will need to attach to their annual filings six new schedules in addition to the existing Schedule A for itemized deductions, Schedule B for interest and dividends, Schedule C for business profit and loss, Schedule D for capital gains and losses and other forms. These new schedules, many of which, require additional worksheets for taxpayers to attach to their returns, include the following:

Schedule 1 – Additional Income and Adjustments to Income

Schedule 2 – Tax

Schedule 3 – Non-Refundable Credits

Schedule 4 – Other Taxes

Schedule 5 – Other Payments and Refundable Credits

Schedule 6 – Foreign Address and Third-Party Designee

It is true that certain provisions of the Tax Cuts and Jobs Act will make it easier for millions of taxpayers to figure out their income taxes and reduce the amount of income subject to tax by simply taking advantage of the expanded standard deduction of $12,000 for individuals or $24,000 for married taxpayers filing jointly in 2018. This will save many taxpayers a considerable amount of time that they previously spent itemizing deductions, many of which disappear under the new tax law or have reduced benefits.

As a result of the tax-return revamp, taxpayers may spend less time completing their 1040s. However, the time they save, likely, will instead be spent completing the additional forms. In light of tax reform and the changes to tax reporting and filing requirements, taxpayers should engage the counsel of experienced accountants and tax advisors to ensure they remain tax compliant and maximize the opportunities the new law provides.

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.

 

Pin It on Pinterest

Menu Title