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Accounting & Tax :: IRS Rescinds Amnesty For Some Who Disclosed Overseas Accounts

Posted on May 19, 2013 by G.R. Reid

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The IRS has ratcheted up its scrutiny of overseas banks accounts, reported in the 2/1/13 Evisor, by taking the extraordinary step of rescinding the amnesty it had initially granted to some individuals. While only a small percentage have been rescinded, this is an indication of the Service paying close attention. Press reports indicate that the Service is notifying tax attorneys that certain Bank Leumi clients who had disclosed their offshore accounts and were accepted into its criminal amnesty program have, upon review, been disqualified.

The IRS has said that federal law prohibits it from commenting on specific cases. However, there are a number of reasons why an individual may be disqualified, including failing to make a timely, truthful and complete disclosure. Failing to file a Report of Foreign Bank and Financial Accounts (FBAR) annually can result in significant penalties being assessed by the IRS.

 

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Accounting & Tax :: RPIE Penalties Could Pop Up After A Purchase

Posted on May 19, 2013 by G.R. Reid

Starting late in 2012, owners of income producing properties in New York City who failed to file or filed late Real Property Income & Expense (RPIE) forms began being charged with penalties — triggering a potential trap for purchasers. The penalties — as high as 3% to 5% of the property’s assessed value — are issued by the City of New York Department of Finance and may have a considerable lag time. For example: according to a source, penalties for 2010 were billed in the tax records nearly 2 years later. If a penalty has a comparable lag in getting entered into the tax records, an unwary purchaser of a property may be in for an unexpected surprise. In this environment, ahead of any closing, confirm that the seller has filed all RPIE forms.

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Commercial Insurance :: How Much Business Liability Do You Need?

Posted on May 18, 2013 by G.R. Reid

There is no set formula regarding how much liability a business needs. However, the more coverage you have, the more bulletproof your business becomes.

 

If you are running a very successful business, you will probably want minimal disruption if an incident occurs in which you may be seen as liable. Thus, the more coverage you have, the greater the likelihood that your business will not be affected by such an incident. Moreover, if you don’t have enough coverage, the incident may result in hundreds of thousands-if not millions-of dollars costing you out of pocket.

Hitting Your Limits
The problem with not having enough liability occurs when you are faced with a legal situation where the injured party or parties don’t want to settle for the coverage amount you have purchased. For example, if you have a $2 million liability policy-and the combined parties will not settle for anything less than $4 million-then you have a problem on your hands. You can pay the difference out of pocket or be forced to go to court. If you go to court and your insurance company agrees to pay your limit to the other parties, then you are probably going to be on your own to cover your legal costs at this point. After all, the insurance company has agreed to pay its maximum obligation under your policy. Of course, if you don’t have the funds, bankruptcy is an option. But do you really want to deal with problems and the disruptions to your business that can result from bankruptcy? Also, bankruptcy may not be an option if you don’t qualify for it under bankruptcy laws.

Multiple Plaintiffs Are Not Uncommon
Often times when a liability occurs, it affects more than one person. Take the recent explosion that occurred outside of Waco, Texas. About 15 people died and over 100 were injured, many seriously. While your business may not have the risk potential of a fertilizer plant, there are always potential dangers that can affect more than one person. Your liability limit is not in any way a per-person limit. It’s a flat limit-no matter how many people are injured. The bottom line is this: the numbers can add up when a number of people are injured. Insurance companies will then pro-rate and split up the limits between all injured parties. Once the insurance runs out, it’s up to you to hire an attorney to settle all remaining cases.

Understanding the Numbers
In most cases, you will see two numbers on your liability policy. The first is your occurrence limit and the second is the annual aggregate. Occurrence refers to any single accident/incident and to subsequent related incidents. For example, in the Texas fertilizer plant incident, the blast constituted an occurrence. So any death, injury or property damage from that accident is only covered by this occurrence limit. The annual aggregate limit is if there are multiple and unrelated accidents or incidents. For this reason, the occurrence limit is extremely important and is the number you should look at as your coverage amount.

The Umbrella Solution
There are a number of ways you can purchase higher limits. Some companies will allow you to increase your liability limits on each of your policies. However, you may be capped at a certain limit, depending on the policy type, the size of the policy and the company. The best solution is to purchase an umbrella policy. An umbrella policy will extend the limits on all or most of your policies. For example, if you have a $2 million occurrence limit, the coverage amount in an umbrella policy will pick up any coverage thereafter. Umbrellas can be purchased in increments of a million dollars. It’s not unusual for a business to purchase $10 million or more of this excess coverage.

Deciding on Your Amount
There are a few good ways to determine how much coverage you need. A discussion with your insurance agent about your business, your risks and your exposure is probably a great starting point. It may also be smart to have this discussion with your attorney or an attorney who handles liability cases. You can also do research on online legal sites to review incidents that have occurred in businesses similar to your own. However, the problem here is that you will only see the cases that went to court, since out-of-court settlements are bound by a gag order.

Liability limits should be taken seriously because your business is your livelihood. Any liability incidents are not pleasant, especially when they put your business or your assets at stake. Robust insurance policies help neutralize these incidents and are crucial to the ongoing success of a business, especially when an undesirable incident occurs.

 

For more information on Commercial Insurance Coverage, contact G.R. Reid Insurance Services.

 

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Accounting & Tax :: Planning for New Taxes Scheduled for 2013 Can Begin Now

Posted on May 18, 2013 by G.R. Reid

It is not too early to begin planning for new taxes scheduled to appear in 2013. This alert focuses on two new taxes Congress enacted to pay for part of the cost of the 2010 healthcare reform legislation, the Affordable Care Act. Assuming the Supreme Court does not reject the healthcare law in its entirety, a new 0.9 percent hospital insurance (“HI”) tax will apply to earned income and another new 3.8 percent unearned income Medicare contribution (“UIMC”) tax will apply to investment income.

Additional HI Tax on Earned Income
The additional 0.9 percent HI tax will apply to wages1 and net earnings from self-employment2 in excess of a threshold amount: $250,000 for married couples filing a joint return, $125,000 for married couples filing separately, and $200,000 for those who are not married.3 The threshold amounts for the additional HI tax are not adjusted for inflation. Therefore, it is likely that more people will become subject to this tax in the future.

The additional tax on wages will be collected primarily by employers through payroll withholding, while any shortfall will be assessed on the income tax return. Unlike the regular 1.45 percent HI tax, there is no employer match.

The withholding obligation applies only to wages in excess of $200,000; however, the tax may apply to wages below that amount.4 Unlike the regular HI tax, which is applied separately to wages earned by each spouse, the new HI tax is imposed on combined wages for married couples filing a joint return. As a result, two working spouses, each earning $150,000 will have no additional withholding taken out by their employers; but they will still be liable for the additional HI tax to the extent their joint earnings exceeds $250,000. Because the threshold for married couples is less than twice the threshold for unmarried earners, the potential for a “marriage penalty” exists.

New UIMC Tax on Net Investment Income
The 3.8 percent UIMC tax will be imposed on the lesser of:

  • net investment income; or
  • the excess of modified adjusted gross income (“MAGI”) over a threshold amount.5

The threshold amounts are the same as those used for the new HI tax.6 For UIMC tax purposes, these thresholds are also not indexed for inflation.

The UIMC tax applies to the full amount of net investment income only if MAGI exceeds the threshold amount by at least the amount of net investment income. The additional HI tax on earned income and the UIMC tax on investment income can both apply in the same year.

MAGI is defined as adjusted gross income, increased by foreign earned income or housing costs excluded from income,7 and reduced by deductions attributable to the excluded income.

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Accounting & Tax :: Guidance Issued On Eligibility For Renewable Energy Credit

Posted on May 18, 2013 by G.R. Reid

Prior to the American Taxpayer Relief Act of 2012 (Act), qualified energy facilities needed to be placed in service before January 1, 2014 (or January 1, 2013 in the case of a wind facility) in order to qualify for the Tax Code Section 45 renewable electricity production credit (PTC), or the Section 48 energy investment tax credit (ITC). Under the Act, construction of the facility must simply begin before January 1, 2014 to be eligible to receive the PTC or the ITC. The IRS has issued guidance in Notice 2013-29 for purposes of determining when construction is deemed to begin.

Notice 2013-29 provides two methods that a taxpayer may use to establish that construction of a qualified facility has begun. First, a taxpayer may show that significant physical work has begun. Alternatively, a taxpayer may use a safe harbor method to establish the beginning of construction.

Construction of a qualified facility begins when significant physical work begins on a facility. Whether or not the taxpayer has begun construction would depend on all facts and circumstances. For purposes of this notice, the IRS would take into account work performed by the taxpayer and work performed for the taxpayer by other persons under a binding written contract entered into prior to the manufacture, construction, or production of the property for use by the taxpayer in the taxpayer’s trade or business. Additionally, the IRS will closely scrutinize a facility, and may determine that construction has not begun on a facility before January 1, 2014, if a taxpayer does not maintain a continuous program of construction.

The IRS noted that it would take into account both on-site and off-site work for purposes of demonstrating that physical work of a significant nature as begun. However, preliminary activities would not be included, even if the cost of those activities is properly included in the depreciable basis of the facility. Preliminary activities include:

  • planning or designing;
  • securing financing;
  • exploring;
  • researching;
  • obtaining permits;
  • licensing;
  • conducting surveys;
  • environmental and engineering studies;
  • clearing a site;
  • test drilling of a geothermal deposit;
  • test drilling to determine soil condition;
  • excavation to change the contour of the land (as distinguished from excavation for footings and foundations); and
  • removal of existing turbines and towers.

Under the safe harbor method, the IRS stated that construction will be deemed as having begun if a taxpayer pays or incurs 5% or more of the total cost of the facility before January 1, 2014 and makes continuous efforts to advance toward completion of the facility. All costs included in the depreciable basis of the facility are taken into account to determine whether the safe harbor test has been met.

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Healthcare & Benefit Services : Health Reform 2014 HSA Limits

Posted on May 16, 2013 by G.R. Reid

Healthcare Reform Image

The 2014 limits for HSAs have been released by the IRS in Revenue Procedure 2013-25. The HSA contribution limits and high deductible health plan out-of-pocket maximums are up slightly over 2013. The HDHP minimum required deductibles have stayed the same.

Minimum Annual Deductibles
For 2014, the minimum annual deductible for a plan to be considered a “high deductible health plan”, or “HDHP” is still $1,250 for single coverage and $2,500 for family coverage (no change from 2013 levels).

Out-of-Pocket Maximums
The maximum out-of-pocket maximums for HDHPs for 2014 will increase to $6,350 for single coverage and $12,700 for family coverage (2013 levels are $6,250 single/ $12,500 family).

Annual Individual Contribution Limit
The maximum permitted contribution to the HSA on behalf of an individual increases slightly to $3,300 for an individual with single coverage and $6,550 for an individual with family coverage (2013 levels are $3,250 single/ $6,450 family).

Catch-Up Contributions
For those age 55 or older, the catch-up contributions will continue to be $1,000. In cases where the HDHP renewal date is after the beginning of the calendar year, any required changes to the annual deductible or out-of-pocket maximum may be implemented as of the next renewal date.

Contact G.R. Reid Healthcare & Benefit Services for more information.

This article is designed to highlight various employee benefit matters of general interest to our readers. It is not intended to interpret laws or regulations, or to address specific client situations. You should not act or rely on any information contained herein without seeking the advice of an attorney or tax professional.

 

 

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Healthcare & Benefit Services :: Health Care Reform Updates

Posted on May 16, 2013 by G.R. Reid

Updated Model COBRA Election Notice Includes Information Regarding Health Insurance Exchanges

Revised Notice Informs Individuals of New Coverage Alternatives

A revised Model COBRA Election Notice is now available for group health plans to inform eligible employees and dependents of the right to continuation of coverage under federal law and how to make an election when a qualifying event occurs. The updated model notice includes information regarding coverage alternatives that will be available through the new Health Insurance Exchanges (also known as Marketplaces).

COBRA Election Notice Requirement
COBRA (the Consolidated Omnibus Budget Reconciliation Act) generally applies to group health plans sponsored by employers with 20 or employees (including both full- and part-time employees) on more than 50% of their typical business days in the previous calendar year.

In general, an individual who was covered by a group health plan on the day before a qualifying event (such as termination of employment) may be able to elect COBRA continuation coverage upon a loss of coverage due to the qualifying event. Upon the occurrence of a qualifying event, the plan administrator is required to provide these individuals (called “qualified beneficiaries“) with an election notice, generally within 14 days after the administrator receives notice of the qualifying event.

Revised Model COBRA Election Notice
The updated Model COBRA Election Notice includes additional information for qualified beneficiaries who may want to consider and compare health coverage alternatives to COBRA that will be available through the Insurance Exchanges, which are expected to begin operating in 2014. The revised notice also describes the availability of premium tax credits for purchasing coverage through the Exchange.

 

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Financial & Wealth :: How Are Annuities Taxed?

Posted on May 15, 2013 by G.R. Reid

One of the most attractive features of an annuity is its tax-deferred status. Generally, you won’t pay any income tax on the interest or earnings until you start taking withdrawals in retirement (age 59½ or later).Qualified and nonqualified annuities are taxed differently. Qualified annuities (such as annuities in an employer-sponsored retirement plan or an IRA) are typically purchased with pre-tax money, so withdrawals are fully taxed as ordinary income. It’s important to understand that purchasing an annuity in an IRA or an employer plan provides no additional tax benefits than those available through the original tax-deferred retirement plan.

Qualified and nonqualified annuities are taxed differently. Qualified annuities (such as annuities in an employer-sponsored retirement plan or an IRA) are typically purchased with pre-tax money, so withdrawals are fully taxed as ordinary income. It’s important to understand that purchasing an annuity in an IRA or an employer plan provides no additional tax benefits than those available through the original tax-deferred retirement plan.

Annuities purchased with after-tax money are taxable upon withdrawal, but only the earnings are taxed. Nonqualified annuities bought after August 13, 1982, are taxed on a Last In, First Out (LIFO) basis. This means that as you take withdrawals, the accrued interest will be the first money taken out and taxed as ordinary income. After the interest has been paid, the initial investment amount will then be distributed without any further taxes.

Most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity. In addition, if the contract is surrendered before age 59½, you may be subject to a 10% federal income tax penalty.

 

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.

 

George G. Elkin and Jason Reid Saladino are Registered Representatives offering Securities through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory products/services are offered through American Portfolios Advisors Inc., a SEC Registered Investment Advisor. G.R. Reid Wealth Management Services, LLC is not a registered investment advisor and is independent of American Portfolios Financial Services Inc. and American Portfolios Advisors Inc. Independent Portfolio Consultants is an independent financial consulting firm and is not affiliated with American Portfolios Financial Services Inc. and American Portfolios Advisors Inc. American Portfolios Financial Services Inc. and American Portfolios Advisors Inc. does not offer tax advice. Please consult with your tax advisor.

 

 

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Healthcare & Benefit Services :: Coverage Examination

Posted on May 13, 2013 by G.R. Reid

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For more information and to schedule a consultation, contact G.R. Reid Healthcare & Benefit Services.

 

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Financial & Wealth :: Balancing Stability and Growth

Posted on April 15, 2013 by G.R. Reid

WomanInvestor GRR ArticleA recent study indicates that only 10% of investors aged 65 and older are willing to assume above-average or substantial investment risk, compared with 19% of investors aged 50 to 64 and 26% of those aged 35 to 49.1

 

 

One of the most basic investing principles is that assets with greater growth potential generally carry greater risk. An investor who is two or three decades away from retirement could decide to be more aggressive in pursuing growth because there may be more time to recover from any potential losses.

As retirement approaches, conserving principal typically becomes more important — and even more so after retirement. Many investors address this concern by transitioning to a more conservative asset allocation (see chart). Asset allocation is a method to help manage investment risk; it does not guarantee against investment loss.

Continuing Need for Growth
Even though the strategy described above is a good rule of thumb, you cannot afford to become complacent with your investments during retirement. Without some growth in your portfolio, withdrawals from your savings could quickly reduce your principal, and inflation could erode your spending power. The challenge is to find an appropriate balance between the need for growth and the desire for principal preservation. Here are some factors to consider.
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You may have more time than you think.
Your savings may have to last longer than you originally anticipated (possibly for 20 to 30 years of retirement), but you may also have more opportunity for your investments to pursue growth.

Consider your other income.
Social Security was never intended to be a primary source of retirement income. Income from other sources — such as rental property, a business, or an inheritance — might give you more flexibility in your investment strategy.

Your goals could require a different approach.
Assess your retirement goals and the cost to pursue them. You shouldn’t assume risk just because you have expensive goals. But a clear picture of what you want to achieve in retirement might help you develop a more appropriate strategy.

Be comfortable with your investments.
Consider your risk tolerance. If you choose a more aggressive approach, be prepared for more volatility in your portfolio and a greater chance of loss.Conversely, if you don’t feel comfortable with market ups and downs, remember that a conservative portfolio may have lower growth potential.

Regardless of your approach, there’s no guarantee that your investments will perform as expected. All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost.

There is no simple answer to finding the appropriate balance between stability and growth, but it’s an issue you should address regularly before and during retirement. We can examine your approach and suggest ways to help your portfolio work smarter for you.

1) Investment Company Institute, 2011.

 

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

 

 

 

Click here to schedule an evaluation with G.R. Reid Wealth Management Services.

 

 

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