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Monthly Archives: April 2019

IRS Relaxes Rules Restricting Hardship Withdrawals from 401(k) Retirement Plans by Adam Slavin, CPA

Posted on April 30, 2019 by Adam Slavin

Thanks to the Bipartisan Budget Act of 2018, workers confronted with an “immediate and heavy” financial burden are finding it far easier to take hardship withdrawals from their employer-sponsored 401(k) and 403(b) plans beginning this year.

Effective Jan. 1, 2019, sponsors of defined contribution retirement plans may no longer require participants seeking early withdrawals of retirement funds to first take out a 401(k) plan loan, which requires timely repayment of the borrowed amount plus interest and a potential lump sum repayment upon termination of the participant’s employment or departure from the company. In addition, plan participants are no longer required to wait six months after receiving a hardship distributions to resume salary deferral contributions to the plan. This allows them to immediately begin rebuilding their savings after a hardship withdrawal.

In addition, the IRS is allowing plan sponsors the option to distribute as hardship withdrawals earnings on 401(k) and profit sharing contributions as well as qualified non-elective contributions (QNEC) and qualified matching contributions (QMAC) and the earnings on those contributions. This decision provides employers with the flexibility to decide what type of contributions they make available for hardship withdrawals while allowing them to preserve the retirement benefits of all of their plan participants.

Beginning on Jan. 1, 2020, 401(k) sponsors must make it easier for plan participants to demonstrate their need for a hardship withdrawal by simply requiring them to provide a written statement explaining that that they do not have enough cash or liquid assets to satisfy an “immediate and heavy financial need.” In addition, sponsors must expand the definition of financial need to include the financial needs of participants’ spouses, children and primary beneficiaries named on their accounts as well as the expenses and losses participants and their primary beneficiaries incur to their principle residences or places of business as a result of the federally declared disaster.

Complying with the new regulations requires employers to amend their plan documents and communicate these changes to participants by Jan. 1, 2020. In addition, employers should note that despite these relaxed rules, they must maintain appropriate records documenting hardship withdrawal requests, reviews and approvals.

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


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.


Guidelines for Retaining Tax Documents by Adam Cohen, CPA

Posted on April 24, 2019 by Adam Cohen

If you filed your federal income tax return for 2018, congratulations! Now begins the tedious task of filing away all of the critical legal and financial documents you should retain for your own record-keeping purposes and to protect yourself in the event that your return becomes the subject of an IRS audit.

In general, it is advisable that you hold on to certain legal and financial documents for as long as they are in effect or you can be responsible for making payments. For example, keep documentation for insurance policies and retirement accounts, including IRAs and 401(k)s,  indefinitely. All documents concerning the purchase, financing and improvement of real estate should be retained during all of the years you own the property and at least three years after a property sale. The same is true to records of stock and other investment purchases and sales, for which you will need to demonstrate your original basis in the assets as well as the fair market value of the date of sale. Finally, documents relating to student loans, mortgages and alimony and/or child support should be retained until you have fulfilled all of your financial obligations under those agreements.

You should also be aware that the IRS has the right to assess additional taxes for three years after you file a return, or six years if you underestimate the gross income reported on your return by 25 percent or more. Therefore, it is a good idea to hold on to previously filed tax returns, including proof of income and deductions for at least six years. However, be advised that in the rare case that you failed to file a tax return or you willfully filed a fraudulent return, the statute of limitations may never run out; the IRS can go after you for both civil and criminal tax fraud at any time.

While there are no fixed rules regarding how long you should keep tax records, it is possible to minimize your record-keeping burden by considering the following guidelines. Moreover, to protect yourself from identity theft, be sure to shred all documents that you do not need to save, especially when they contain personal information, such as Social Security numbers and the numbers of financial accounts.

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


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 Clarifies Tax Treatment of State and Local Tax Refunds under new SALT Deduction Limit by Karen A. Lake, CPA

Posted on April 22, 2019 by Karen Lake

The IRS recently issued guidance to help taxpayers in high-tax states understand how the new tax law’s $10,000 annual limit on deductions for state and local taxes (SALT), and property and real estate taxes affects the tax treatment of SALT refunds they receive beginning in tax year 2019.

In general, taxpayers may exclude from their taxable income any dollar amount they receive as a refund for SALT paid in a prior year in which they claimed a standard deduction, which for 2018 is $12,000 for single filers or $24,000 for married couples filing jointly. This is not the case when taxpayers itemize their deductions. Rather, when itemizers receive a refund for all or a portion of the state and local taxes they paid in a previous year, they must report the recovered amount the following year on their federal returns as taxable income, to the extent the taxpayer received a tax benefit from the deduction in the prior year. The legal theory behind this rule is that taxpayers who receive a tax benefit in one year (in the form of a SALT deduction) should not be permitted to also benefit from a refund they receive for that tax benefit in a future year.

Taxpayers in high-tax states, such as New York, New Jersey, Connecticut and California, who paid state and local taxes, property taxes and real estate taxes in excess of the $10,000 cap in 2018 and who subsequently receive a SALT refund in 2019 will need to determine how much of that refunded amount they must include as taxable income when they file their 2019 tax returns in 2020. After all, if taxpayers received a tax benefit from deducting state or local taxes in 2018, they may not receive a second benefit in the form of a tax refund in 2019. Instead, the taxpayer who recovers any portion of state or local state or local tax, including state or local income tax and state or local real or personal property tax, must include in gross income for 2019 the lessor of 1) the difference between the taxpayer’s total itemized deductions taken in the prior year and the amount of itemized deductions the taxpayer would have taken in the prior year had the taxpayer paid the proper amount of state and local tax or (2) the difference between the taxpayer’s itemized deductions taken in the prior year and the standard deduction amount for the prior year, if the taxpayer was not precluded from taking the standard deduction in the prior year.

The IRS’s revenue ruling illustrates the recovery of tax benefits with four examples, including one in which a taxpayer paid local real property taxes of $4,250 and state income taxes of $6,000 in 2018. Due to the SALT cap, the taxpayer could deduct on his 2018 federal income tax return only $10,000 of the total $10,250 he paid in state and local taxes. Including other allowable itemized deductions, the taxpayer claimed a total of $12,500 in itemized deductions in 2018. In 2019, the taxpayer received a $1,000 state income tax refund due to an overpayment of state income taxes in 2018. Had the taxpayer paid only the proper amount of state income tax in 2018 ($5,000 instead of $6,000) his state and local tax deduction would have been reduced from $10,000 to $9,250, and his itemized deductions would have been reduced from $12,500 to $11,750, which is less than the standard deduction of $12,000 that he would have taken in 2018. The difference between the taxpayer’s claimed itemized deductions ($12,500) and the standard deduction he could have taken ($12,000) is $500. Therefore, the taxpayer received a tax benefit from $500 of the overpayment of state income tax in 2018, and he must include that $500 in his taxable gross income in 2019.

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

The Art of Bunching Deductions for Charitable-Minded Taxpayers by Joanie B. Stein, CPA

Posted on April 19, 2019 by Joanie Stein

Many individuals filing their first federal income tax returns since the enactment of the new tax law are surprised to learn that they were not able to write off the donations they made to non-profit organizations in 2018. While few people give to charity solely for a tax break, much ink has been spilled over whether the potential loss of the charitable deduction will cause taxpayers to cut back on their generosity or stop giving to charity altogether. The fact is the Tax Cuts and Jobs Act provides some philanthropic-minded taxpayers with an opportunity to change their giving strategies for greater tax efficiency and charitable impact.

The New Tax Law

Under tax reform, the charitable deduction is available only to those taxpayers who itemize their deductible expenses. With a near doubling of the standard deductions to $12,200 for individuals and $24,400 for married couples filing jointly in 2019, it is estimated that the number of households clearing this threshold and itemizing deductions for charitable contributions in 2018 is approximately half of what it was in 2017, before the passage of the TCJA.

On the other hand, the law provides taxpayers whose deductible expenses exceed the cutoff and are able to itemize their deductions greater tax savings for their charitable contributions. For tax years 2018 through 2025, the amount of the deduction itemizing taxpayers may claim for charitable cash gifts increases to 60 percent of adjusted gross income (AGI) while keeping the current deduction for gifts of appreciated assets at 30 percent of AGI. Moreover, the TCJA’s repeal of the Pease limitations means that high-income households can deduct significantly more of their qualifying itemized expenses through 2025.

Unfortunately, many taxpayers do not have a well-though-out giving strategy; they merely write checks to non-profit organizations here and there. The new law provides an opportunity for families to create a giving plan that allows them to make a greater impact on their favorite charities while at the same time improving their own tax circumstances.

The Solution: Bunching Charitable Gifts

One tactic families can employ to ensure they receive the full tax benefit of their philanthropic efforts is to bundle together two or more years of charitable donations into a single year. This strategy of “bunching” several years of charitable gifts into one year can push taxpayers above the threshold for itemizing deductions in that year and provide them with a deduction for the full value of their donation. In alternate years, taxpayers could give less and simply claim the standard deduction.

As simple as this may sounds, bunching deductions requires careful planning and timing of expenses. After all, philanthropy involves far more than making donations to non-profit organizations in exchange for tax savings. Rather, philanthropy is a state of mind and long-term commitment of time, money and resources to effectuate a positive change in communities around the world and the lives of the people who live there. It is a code of ethics and guiding principle that families share and pass down from one generation to the next. Therefore, philanthropic-minded families want their charitable giving to make a measurable impact on the organizations and people who receive their gifts. To best accomplish this goal, taxpayers may want to consider directing their bunched charitable gifts to donor-advised funds (DAF) that support the specific charities that matter most to them.

More about Donor Advised Funds

DAFs are savings accounts controlled by sponsoring organizations, such as financial services firms or community foundations, that accept and invest taxpayers’ irrevocable charitable donations and later distribute those funds via grants to designated charities. The funds themselves are 501(c)(3) charities that act as turnkey solutions to help taxpayers manage and maximize their charitable giving and tax efficiency. Because DAFs invest donations for tax-free growth, a gift to a DAF in one year can result in a larger grant to a recipient charity in future years.

In return for their multi-year, bunched gifts to DAFs, taxpayers receive an immediate tax deduction for the full amount of their gift in the year of contribution. For cash gifts, the annual deduction can be as much as 60 percent of the taxpayers’ annual AGI in tax years 2018 through 2025, or 30 percent of AGI for gifts of appreciated assets, such as securities, real estate or interest in a family business held for more than one year. By comparison, taxpayers who make charitable contributions to a private foundation can deduct up to 30 percent of AGI for cash gifts and only 20 percent of AGI for appreciated assets. These types of non-cash donations to DAFs or private charitable foundations also provide taxpayers with the ability to reduce or eliminate their exposure to capital gains tax on the appreciation of those assets while also giving a much larger gift to charity. When DAF contributions surpass the IRS limits, taxpayers may carry the deduction forward five years.

For example, a taxpayer who gives $6,000 to charity every year may not receive the benefit of a full tax deduction in each of those years. However, if the taxpayer gives $12,000 to a DAF every two or three years, he or she is more likely to clear the standard deduction ceiling and qualify to write off the full value of his/her bunched charitable gifts in those years. Moreover, because the DAF invests the taxpayer’s $12,000 gift, the recipient non-profit entity will receive the appreciated value of that gift.

The requirements for participating in donor advised funds varies from one sponsor to the next. Even though there is no law governing when or how often a DAF must grant assets to qualifying charities, most have policies in place requiring account owners to grant minimum gifts to nonprofits every few years to ensure that funds are put to work for charitable causes. However, DAF participants should note that while they will receive a tax deduction in the year of their contribution, their donations may not reach the intended charities in the same year. As a result, donors should investigate DAFs before making contributions to ensure that the selected fund squares with the donor’s unique philanthropic goals and philosophies.

Another Solution for Older Taxpayers

Charitable-minded taxpayers over the age of 70½ who are financially comfortable and do not need their individual retirement account (IRA) savings to fund their later years have another giving strategy available to them. More specifically, these taxpayers may make qualified charitable distributions (QCDs) from their traditional IRAs directly to certain non-profit organizations to satisfy their annual IRA required minimum distribution (RMD) obligations. While taxpayers will avoid income tax on the transferred amounts to non-profit entities, their QCDs will not qualify for a charitable deduction. Moreover, taxpayers should be aware that are specific rules prohibiting them from making QCDs to donor advised funds or private foundations or from SEP IRAs, SIMPLE IRAs or 401(k) plans.

Despite the changes that the new tax law brings to charitable deductions, most people will continue to give generously to those in need and carry on their philanthropic traditions. Yet, it behooves taxpayers to examine their existing giving strategies in light of tax reform and consider employing different methods to improve the charitable impact of their gifts and their potential tax savings.

About the Author: Joanie B. Stein, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she works with individuals and closely held businesses to implement sound strategies that are intended to preserve wealth and improve tax-efficiency. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at

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 Issues Safe Harbor for Business Vehicles that Qualify for First-Year Bonus Depreciation by Cherry Laufenberg, CPA

Posted on April 16, 2019 by Cherry Laufenberg

Under the Tax Cuts and Jobs Act (TCJA), businesses have an opportunity to claim larger depreciation deductions beginning in 2018 for qualifying new and used property, including passenger vehicles, they acquire and place into service between Sept. 28, 2017, and Dec. 31, 2026. However, it is critical that businesses pay particular attention to recent IRS guidance to determine deductions when vehicles are eligible for a 100 percent additional first-year bonus-depreciation deduction and subject to depreciation limitations.

In general, Section 179 and depreciation deductions for passenger automobiles are subject to dollar limitations for the year the taxpayer places the passenger automobile in service and for each succeeding year. A new or used passenger car, SUV or truck used by a taxpayer at least 50 percent of the time for business purposes can also qualify for an additional first-year depreciation deduction, which the TCJA increased to a maximum of $18,000 for tax year 2018.

Under prior law, the allowance for a new passenger vehicle was limited to $11,160 in the first year or $3,160 for a used car. According to the IRS, this generous provision of the new tax law could result in irregularities in tax years after the placed in service year and before the first tax year succeeding the end of the recovery period. The safe harbor method of accounting recently issued by the IRS aims to mitigate situations in which the depreciable basis of a passenger automobile for which the 100-percent additional first-year depreciation deduction exceeds the first-year limitation.

If the depreciable basis of a passenger automobile for which the 100-percent additional first-year depreciation deduction is allowable exceeds the first-year limitation, the taxpayer may apply the safe harbor accounting method to deduct the excess amount of depreciation deductions on their income tax returns in the first tax year after the end of the recovery period. Doing so requires taxpayers to use the IRS applicable depreciation tables.

Excluded from the benefit of the safe harbor are passenger vehicles that taxpayers place in service after 2022 or those automobiles for which a taxpayer elected out of the 100-percent additional first-year bonus depreciation deduction or elected under Section 179 to expense all of a portion of the cost of the vehicle.

The advisors and accountants with Berkowitz Pollack Brant work closely with businesses of all sizes and across virtually all industries to implement strategies intended to minimize tax liabilities, maintain regulatory compliance, improve efficiencies and achieve long-term growth goals.

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


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 Enhances Security, Revises EIN Application Process by Angie Adames, CPA

Posted on April 10, 2019 by Angie Adames

Effective May 13, 2019, the IRS will only issue Employer Identification Numbers (EINs) to entities whose applications name a responsible party who has a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). No longer will the IRS accept Form SS-4 or online applications from entities that use their existing EINs to obtain additional EINs. The requirement will apply to both online EIN applications and paper Form SS-4, Application for Employer Identification Number.

An EIN is a nine-digit number that the IRS issues to sole proprietors, corporations, partnerships, estates, trusts, employee retirement plans and other entities to use as identification for tax reporting and tax filing purposes. The responsible party named on an EIN application is typically the entity’s principal officer, general partner, grantor, owner or trustee who has the authority to control, manage and/or direct the entity and the disposition of its funds and assets. When an entity has two or more responsible parties, it must select only one to name on its EIN application. This requirement does not apply to governmental entities (federal, state, local and tribal); as well as the military, including state national guards.

According to the IRS, this new policy is intended to strengthen security in the EIN process by requiring an individual to be the responsible party and improve transparency.


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

IRS Warns of Top Tax Schemes for 2019 by Edward N. Cooper, CPA

Posted on April 05, 2019 by Edward Cooper

By Edward N. Cooper, CPA

The IRS has issued its annual list of the Dirty Dozen scams that taxpayers should look out for in 2019. Under U.S. laws, taxpayers are legally responsible for the information contained in their tax returns, even when those documents are prepared by someone else. Therefore, it is critical that you take special care when selecting a tax preparer and reviewing your returns for errors. Your best defense to avoid falling victim to these scams is to learn how to spot them and remain vigilant throughout the year.

Phishing Attempts. Criminals are skilled as creating official-looking emails and websites that trick individuals into divulging their personal information. Taxpayers should be wary of all emails and text messages that request they log in to an established account or that ask for sensitive information, such as their social security or tax ID number. Moreover, remember that the IRS will never contact you via email or text, and any message purporting to come from the agency is most likely a scam.

Phone Scams. There has been a steady increase in phone scams in which criminals impersonate the IRS or claim to be IRS debt collectors in order con taxpayers into sending them bogus tax payments. Learn how to recognize these schemes and take extra precautions to protect yourself.

Identity Theft. Tax-related identity theft occurs when someone uses a stolen Social Security number or Individual Taxpayer Identification Number (ITIN) to file a fraudulent tax return and claim a refund. Safeguard your personal information and regularly review your credit report for signs of theft.

Tax Preparer Fraud. While the vast majority of tax professionals provide honest, high-quality service, there are some prepares who operate solely for the purpose of scamming taxpayers, perpetuating identity theft and reaping the benefits of refund fraud.

Inflated Refund Claims. Be wary of tax preparers who ask you to sign blank tax returns, promise you a refund before looking at your records or charging you fees based on a percentage of the refund. Do your homework and check references before selecting a tax preparer.

Falsifying Income to Claim Credits. Con artists have been successful in convincing taxpayers to invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. To avoid significant tax bills and penalties and interest, make sure that you verify the accuracy of the information contained in the tax return you file with the federal government.

Falsely Padding Deductions on Returns. Think twice before overstating deductions, such as charitable contributions and business expenses, or improperly claiming credits, such as the Earned Income Tax Credit or Child Tax Credit, in an effort to reduce your bill or inflate the amount of your tax refund.

Fake Charities. Before making donations to charitable organizations, take the extra time to confirm that the group asking for a contribution is, in fact, a qualified and legitimate non-profit agency. A complete search is available on the IRS website.

Excessive Claims for Business Credits: Avoid improperly claiming tax credits, such as the fuel tax credit and the research credit, unless you satisfy the requirements to legitimately use them.

Offshore Tax Avoidance. Hiding money and income offshore has been the target of a wide sweep of successful enforcement actions. The best option for avoiding penalties and potential criminal prosecution is to come clean and voluntarily report offshore assets.

Frivolous Tax Arguments. While taxpayers do have a right to contest their tax liabilities, they should avoid using frivolous tax arguments or other unreasonable schemes to avoid their tax liabilities. The penalty for filing a frivolous tax return is $5,000 and felony prosecution.

Abusive Tax Shelters. The vast majority of taxpayers pay their fair share to the federal government. However, it is not uncommon for individuals to fall victim to con artists who scam them into using abusive tax structures. Always seek the opinion of professional counsel when faced with a complex tax-avoidance product.

About the Author: Edward N. Cooper, CPA, is director-in-charge of Tax Services with Berkowitz Pollack Brant, where he provides business- and tax-consulting services to real estate entities, multi-national companies, investment funds and high-net-worth individuals. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at

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 Expands Penalty Waiver for Underpayments of 2018 Federal Tax Liabilities by Jeffrey M. Mutnik, CPA/PFS

Posted on April 02, 2019 by Jeffrey Mutnik

In response to a chorus of concerned taxpayers and tax preparers, the IRS is providing additional penalty relief to taxpayers who have found that they did not pay enough in federal taxes in 2018 through W-2 withholding, quarterly estimated tax payments or a combination of the two.

Effective immediately, individual taxpayers, trusts and estates that paid at least 80 percent of their total tax liabilities during 2018 will escape penalties when filing their tax returns before the 2019 deadlines. In January, the IRS first lowered the penalty percentage threshold from 90 percent to 85 percent. Individuals who already filed their tax returns for 2018 but qualify for this expanded relief may claim a refund by filing on paper IRS Form 843, Claim for Refund and Request for Abatement, and include the statement “80% Waiver of estimated tax penalty” on Line 7. This form cannot be filed electronically.

Generally, the U.S.’s pay-as-you-go tax system requires taxpayers to pay at least 90 percent of their tax obligations during the year, as they earn income, or risk an underpayment penalty and interest on the unpaid amount. However, many taxpayers who took home larger paychecks in 2018, thanks to the new tax law, are now finding that they owe the government money because the IRS withholding tables did not reflect all of the changes contained in the new law.

To avoid an unexpected tax bill in future years, taxpayers should meet with their advisors and accountants during the first half of 2019 to confirm the accuracy of their estimated tax payments and to check the withholding on their most recent paychecks to ensure they are having enough tax withheld from their wages based on their filing status, number of dependents and other factors.

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


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