berkowitz pollack brant advisors and accountants

Real Estate Rehabilitation Tax Credit Changes under New Tax Law by Joshua P. Heberling

Posted on December 06, 2018 by Joshua Heberling

The rehabilitation tax credit that provides an incentive for real estate owners to renovate and restore old or historic buildings has been modified under the Tax Cuts and Jobs Act (TCJA) signed into law in December 2017.

Under the new law, taxpayers claiming a 20 percent credit for the qualifying costs they incur to substantially rehabilitate a building must spread out that credit over a five-year period beginning in the year they placed the building into service, which is the date on which construction is completed and all or a portion of the building can be occupied. Excluded from the credit are any expenses that taxpayers incurred to buy the structure.

In addition, the law specifically eliminates the availability of a reduced 10 percent rehabilitation credit for pre-1936 buildings. However, owners of certified historic structures or pre-1936 buildings may qualify for temporary relief under a transition rule when they meet the following conditions:

  • The taxpayer owned or leased the building on Jan. 1, 2018, and he or she continues to own or lease the building after that date.
  • The 24- or 60-month period selected by the taxpayer for the substantial rehabilitation test begins by June 20, 2018.

Qualifying for and claiming the rehabilitation tax credit can be a complicated process for which taxpayers should seek the counsel of professional tax advisors and accountants.

About the Author: Joshua P. Heberling is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where he focuses on tax planning and compliance services for high-net-worth individuals and businesses in the commercial real estate, land development and office market industries. He can be reached at the 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.

 

 

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.

 

 

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.

 

 

How is Tax Reform Shaping Up for Real Estate Businesses and Investors? by John G. Ebenger, CPA

Posted on October 26, 2018 by John Ebenger

There’s no question that the Tax Cuts and Jobs Act (TCJA) provides a big win for real estate businesses and investors. However, realizing the full benefit of these provisions will require careful evaluation, strategic planning and flexibility, as the IRS and U.S. Treasury continue to trickle out guidance that taxpayers may apply to their unique circumstances. Here’s a brief overview of some of the new regulations that taxpayers should be addressing with their accountants and advisors.

Lower Income Taxes for Individuals and Businesses

For starters, the new law reduces the top marginal income tax rate for high-income earners from 39.6 percent to 37.0 percent and more than doubles the estate tax exemption, which allows individual taxpayers to exclude from estate tax up to $11.2 million in assets, or $22.4 million for married couples filing jointly. At the same time, the TCJA establishes a corporate tax rate of 21 percent, down from 35 percent, while also eliminating the corporate Alternative Minimum Tax (AMT).

Potential Deduction for Pass-Through Entities, Trusts and Estates

Businesses that are structured as pass-through entities, such as partnerships, LLCs, S corporations and sole proprietorships, may qualify to deduct annually as much as 20 percent of U.S.-sourced “qualified business income” (QBI) that flows through to their owners’ personal tax returns. While the deduction is subject to a myriad of restrictions, based on taxpayers’ lines of business and their taxable income, the consensus is that investors and professionals involved in the real estate industry can reap significant tax savings. Realizing these benefits may require taxpayers to reassess and perhaps restructure their existing operations, including how they pay employees and independent contractors, and evaluate more closely how the new law will treat specific items of income, such as triple net leases or ground lease real estate rentals.

First-Year Bonus Depreciation

The TCJA allows businesses to immediately write-off 100 percent of the costs they incur for an expanded list of qualifying tangible personal property, including previously used assets that they purchased or financed during the tax year. Under prior law, bonus depreciation was limited to 50 percent and applied only to new property. As a result, qualifying businesses may now immediately recover the full costs of more investments they make to grow their operations. Yet, because additional guidance is still forthcoming from the IRS, taxpayers should plan carefully.

Section 179 Expensing

Eligible businesses may take an immediate deduction of up to $1 million per year for the costs they incur to acquire qualifying improvement property and business assets. The amount of the deduction is reduced dollar-for-dollar when acquisition costs exceed $2.5 million. Previously, the Section 179 deduction was limited to $500,000, and it began to phase out at $2 million.

As an added benefit, the TCJA also expands the definition of Section 179 property to include other improvements made to nonresidential real property, including roofs; heating, ventilation, and air-conditioning; fire protection; and alarm and security systems.

Net Operating Losses

Prior to the TCJA, businesses were permitted to carry back net operating losses (NOLs) two years or carry them forward 20 years to offset table income. Effective for the 2018 tax year, however, NOLs can longer be carried backward. NOL carryforwards, which are now limited to 80 percent of a business’s taxable income, may be applied against taxable income indefinitely. As a result of the tax reform law, businesses will need to adjust 2018 carryovers from prior tax years to account for the 80 percent limitation.

Business Interest Deduction

The TCJA generally limits the interest payments that businesses may deduct to 30 percent of “adjusted” gross taxable beginning in 2018 and further limits the deduction beginning in 2022. However, the law does provide real estate businesses and investors with a number of exceptions to this limit. For example, eligible taxpayers may elect to fully deduct (after any required capitalization) interest accrued in the development, construction, acquisition, operation, management, leasing or brokerage of real property. In addition, there is an exemption for certain taxpayers considered “small business” with average annual gross receipts of $25 million or less for the three most recent prior tax-year periods.

Carried Interest

Congress spent the past several years debating the preferential tax treatment of management fees and other forms of compensation (in excess of salaries) paid to partners, managers and developers for a share of a business or a project’s future profits. This concept of carried interest treatment survived Congressional wrangling over tax reform and will continue to be taxed at the favorable long-term, capital gains rate of 20 percent rather than the maximum ordinary income rate, which under the TCJA is 37 percent. However, the new law does limit the tax treatment of these gains to apply only to assets held for more than three years or sold after three years.

Section 1031 Like-Kind Exchanges

Thanks, in large part, to the lobbying efforts of the National Association of Realtors and National Association of Real Estate Investment Trusts, Section 1031 exchanges of like-kind real estate property will continue to receive tax-deferred treatment under the TCJA. Nevertheless, the law eliminates the availability of tax-deferred exchanges of personal property, including items such as artwork, coins and other collectibles.

About the Author: John G. Ebenger, CPA, is a director of Real Estate Tax Services with Berkowitz Pollack Brant, where he works closely with developers, landholders, investment funds and other real estate professionals, as well as high-net-worth entrepreneurs with complex holdings. 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.

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